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Storrs v. Flint

46 N.Y. Super. Ct. 498 14 Jones & S. 498 Court N.Y. Super. Ct. Decision date 1880-12-06 English

Contents

Majority

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CHARLES STORRS and AUGUSTUS STORRS, Respondents, v. THOMPSON J. S. FLINT, and the RUSSELL & ERWIN MANUFACTURING COMPANY, Appellants.

Headnote

I. Tbtjst Deeds.
To carry on business theretofore carried on by the creator of the trusts, pay certain debts of the creator, and turn over the property.
1. POWERS OF TRUSTEE.
Certain premises and property (including among other things two factories), and the business connected therewith, were conveyed by D. to B., to be held, managed, and disposed of by him upon trust: '(1) To pay the expenses of the business; (2) To pay certain other sums; (8) To pay to one T. J. F. S. four several sums of money with semi-annual interest, as represented by four several notes made by D. to said T. J. F. S., such notes bearing even date with the
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declaration of trust, and payable one year after date. If default should be made in the payment of any of such notes,- or if the trustee should not be in sufficient funds to pay the same, as and when they became due, then he was to pay T. J. F. S. such money as he might then have in hand, and at pnce proceed to sell the trust property on hand at public or private sale, and apply the proceeds to the payment of such notes; and if there should be any surplus to apply it for the benefit of the persons thereinafter named. But if such notes should be paid at maturity out of the proceeds or profits of the business, or in any way otherwise than by a sale of the trust property as above directed, then the trust was to continue on the same terms and conditions as before stated for the benefit of the parties thereinafter mentioned, viz.: (1) To reimburse the R & E. Manufacturing Co. its expenditures for the purchase of steel delivered to B. in the prosecution of the business of the trust. (3) To pay the R. & E.' Manufacturing Co. a certain sum, with semi-annual interest, as represented by two notes of D., payable twenty-four months after date, they bearing even date with the declaration of trust. (3) To pay the R. & E. Manufacturing Co. all moneys due them by (him) B. on account of any matters connected with the trust, or for advances made by it in or about the business or property of the trust; and in case of default in the payment of such notes, or sums of money, obligations, or liabilities due or to grow due to the said R. & E. Manufacturing Co., or if said B. should not be possessed of sufficient funds to pay the same as and when they come due, then on trusts similar to those before limited, upon the nonpayment or non-possession of sufficient funds to pay the notes of T. J. F. S. except as to the surplus, if any, which in this event is to go to D., and also except as to the disposition of the trust property in ,case these notes are unpaid otherwise than by a sale thereof, which in this event is to be transferred to D.
1. Power to issue negotiable, or commercial paper. (ai) He has no power to issue such paper so as to render the eestuis qvA trust, T. J. F. S. and R. & E. Manufacturing Co., liable thereon.
1. There is no partnership between them, or between them or either of them, and D.;and B. is not their or either of their agents, either in the
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transaction of the business or for any other purpose.
1. There being no authority or power given by either T. J. F. S. or R. & E. Manufacturing Co., the case of a note made B. does not fall within, that line of decisions where a principal who has given an agent authority to make notes is held liable on notes made by the agent in excess of his authority, and on those made within the authority, the proceeds whereof has misapplied to his own use.
2. Power to Make Debts or Borrow Money.
(a) He has no such power, unless it may be for the purpose of conducting the business.
1. It follows that one to whom he has contracted a debt, or of whom he has borrowed money, has no claim on the trust property, either as a creditor or a cestui qui trust; unless, perhaps, he can show that the debt was contracted or money borrowed was for the purpose of, and was in fact used in, the carrying on of the business; in which case he could not assert his right in a common law action, but would have to go into equity for an accounting under the trust.
2. It further follows that a transferee of the trust property who takes for a full consideration by a transfer made by B. at the request and with the consent of D., T. J. F. S. and the R. & E. Manufacturing Co., does not hy so takina the property become liable to pay such indebtedness or a note made therefor.
3. Application.
1. B. made a note dated June 23,1874, payable to the order of himself, for $7,000. • He signed it “Douglass Manufacturing Co., B., Treasurer.” He borrowed $7,000 on the note. A portion of the $7,000 was applied towards the payment of one of the claims of T, J. S. F., mentioned in the declaration of trust; how the balance was applied docs not appear. After this B., being unable to pay T. J. S. F., pursuant to the terms of the declaration of trust, transferred, at the request of D., T. J. S. F. and
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the R. & E. Manufacturing Co., the whole of the trust property to T. J. S. F. and the R. & E. Manufacturing Co., in consideration of the debts due them, to be held by them in proportion to their respective claims. Their claims far exceeded the value of the trust property.
Held,
that the holders of the note had no claim either against T. J. S. F. and the R. & E. Manufacturing Co., or either of them, or against the trust property.
II. Maxim.
1. Secundum, allegata et probata.
(a) A judgment will not be sustained on an issue which is not pleaded.
HE. Amendment at Trial.
1. One which substantially changes a claim or defense cannot be allowed.
(a) Substantial change, what is.
1. A change from an action on the case to one on express contract is
1. Case at Bar. The complaint sets forth a promissory note not purporting to be made by defendants, and various circumstances by reason of which it was sought to charge defendants with the payment of the note, but did not allege a promise by defendants or either of them to pay it. At the trial proof of an express promise was admitted, the judge stating that an amendment might be made if necessary. No amendment was in fact made. Verdict for plaintiff. Held,
1st. The verdict could not be sustained on the ground of an express promise, because it was not secundum allegata.
2d. The court at special term had no power to allow an amendment of the complaint by inserting an allegation of a promise to pay; consequently the . General Term could neither deem it to have been made, nor make it itself, so as to malee the verdict secundum allegata.
IV. PROMISE SUFFICIENT AND INSUFFICIENT TO SUSTAIN ACTION.
1. Principle. Promise by A. to B. to pay money loaned to him
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by B. to C. to pay B.’s debt to C., is sufficient to enable C. to maintain an action against A.
(a) Principle, not applicable to case at bab.
1. To make it applicable there should have been a promise by Erwin and Flint to B., to pay a debt they owed, or a consideration moving from them, to B. to plaintiffs, for a debt owed by B. to them.
1. Nothing of this kind appears.
2. Merger and want op consideration.
(a) In the case at bar the promise was to D. and was either before or after the execution of an agreement between D. and the R. & E. Manufacturing Co., by which D. conveyed to the R. &E. Manufacturing Co. all his right, title, and interest in and to everything in the hands of B. as trustee, and called upon B. to execute conveyances of the property in his hands, and to transfer it to the R. &E. Manufacturing Co., and that company agreed to apply and appropriate the property to them so conveyed towards the accrued indebtedness of D. and the Douglass Manufacturing Co. to them, and to the indemnification of themselves for any liabilities under which they were on account of D. or the Douglass Manufacturing Co., and for any damages, &c., and that after so paying and indemnifying themselves, they would pay to D. any surplus or balance of said property that should remain.
Held,
that a promise to pay any claims not included in the instrument was
1st. If made before the execution of the instrument, merged in it.
2. If made afterwards without consideration, there being no consideration for the possession, other than the transfer made by the agreement.
Before Sedgwick, Oh. J., Speer and Russell, JJ.
Decided December 6, 1880.
Appeal from a judgment entered upon the verdict of a jury.
The complaint was as follows :
“ 1. That the plaintiffs are, and that at all the times mentioned herein, they were, partners doing business
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in the city of New York, under the firm name of Storr Brothers.
“2. That as such partners, they own and hold a note, of which the following is a copy:
“ ‘New York, June 23, 1874.
“ ‘ One month after date, we promise to pay to the order of R. P. Bruff, Esq., $7,000, at Importers’ and Traders’ National Bank ; value received.
“ ‘ Douglass Manufacturing Comp ant.
“ ‘ Rich. P. Bruff, Treas.’
“3. That ‘ Douglass Manufacturing Company ’ was the name by which a certain manufacturing business was carried on in the city of New York and elsewhere, at the time the said note was made; that these plaintiffs do not know the names of all the persons who participated in carrying on the said business, but that, as they are informed and believe, the defendant, Thompson J. S. Flint, and the defendant, the Russell & Erwin Manufacturing Company, which then was and now is a duly organized corporate company, so participated, and that they were some or all the parties doing business under such name ; that by the arrangement under which such business was carried on by the defendants, the said Richard P. Bruff was authorized to make the said note.
“4. That the said note was given for value received by the said business from these plaintiffs, and that, in consideration of such value, the said note was made, and by the said Richard P. Bruff was indorsed to these plaintiffs.
“ 5. That the title to all the assets of the said business was vested in the said Richard P. Bruff, and was held by him under a certain written instrument ór declaration, duly executed by him, bearing date January 30, 1873, whereby he was created trustee to
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carry on the said business, for, and for the'benefit, among others, of the defendants. That both by the terms of the said instrument, as these plaintiffs are informed and believe, and in the nature of the case, all the assets so held by the said Richard P. Bruff, as such trustee, for the benefit of the said business, were bound and became liable for the payment of its debts, including the amount so due these plaintiffs ; and that, after the said note was received by these plaintiffs, the defendants compelled the said Richard P. Bruff, as such trustee, to, and he did transfer such assets to them. That the defendants gave no consideration for such transfer, and .that the value of the assets so transferred to them largely exceeded all the indebtedness of such business, whereby, as these plaintiffs are informed and believe, the defendants became liable to pay such indebtedness, including the amount so due the plaintiffs,
“The plaintiffs, therefore, ask judgment against the defendants for the sum of $7,000, with interest thereon from July 26, 1874, and the costs of this action.”
The defendants,.answering separately, denied that Bruff had any authority from them to make the note in question, ot that they were, as parties to the note, or as partners or joint stock owners, or in any way, bound to pay it. They disputed the construction put. by the plaintiffs in their complaint, on the deed of trust to Bruff, and disputed that the assets of the Douglass Manufacturing Company were to be held by him for the payment of general debts, and alleged that he was to hold them for the payment of certain specified debts, among them, the defendants’. They alleged that Bruff’s transfer to them was voluntary, after friendly negotiations, in accordance with the terms of the deed of trust to Bruff ; because of the happening of certain contingencies and defaults provided for in
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the deed; and that it was upon a consideration exceeding the value of the assets so transferred.
The case was tried in June, 1880. On the trial the following facts were developed. The “Douglass Manufacturing Company ” was not a corporation, a joint stock company, or a copartnership. It was a name adopted by Thomas Douglass under which to do business. For most practical purposes, so far as this case is concerned, Thomas Douglass and the Douglass Manufacturing Company were one and the same. Under this name—“The Douglass Manufacturing Company ” —was conducted the business of two manufactories, one at Seymour, in Connecticut, called the “F. L. Ames Auger Works,” and one at Arlington, Vermont, called the “F. L. Ames Chisel Works,” which manufactured and sold hardware of the nature of chisels, augers, &c. At the time of these transactions, and for some years previous, the Russell and Erwin Manufacturing Company sold in New York, upon commission, as factors, the goods manufactured by these mills. The title to the property at Seymour, Connecticut, and Arlington, Vermont, seems to Save been in Fred. L. Ames, Oakes Ames and Oliver Ames. Thomas Douglass owned an equitable interest in the property, as did N. R. Douglass and Charles Douglass, the extent of which nowhere appears. The title to the personal property was in F. L. Ames. Just how the Ameses came to hold the title does not appear, nor is it important, but the surrounding circumstances seem to indicate that they held it as security for advances or debts. Thomas Douglass had charge of the business, apparently as the owner. He became embarrassed financially. The mills were running behind. He sought to borrow money. He was made acquainted with the defendant, Flint, through Mr. Stillman, a lawyer. They entered into negotiations, the result of which was a loan of §136,063.97 by Flint, and a loan of §61,290.18, and an
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agreement to advance and supply steel for manufacture, by Bruff, representing the Russell & Erwin Manufacturing Company. A portion of the moneys loaned by the defendants was paid to the Ameses, to satisfy some claim they had upon the property. It would seem also that they still had a mortgage or mortgages after such payment. Thereupon, about January 18,1873, the Ameses executed to Bruff deeds conveying the property at Seymour, Connecticut, and Arlington, Vermont, and a bill of sale to Thomas Douglass, covering all the personal property, the product of such mills. This personal property Douglass at once turned over to Bruff. N. B. Douglass and Charles Douglass quit-claimed whatever interest they had. Bruff at the same time executed a declaration of trust, reciting the conveyances to him, and that the money with which to pay the Ameses was supplied by Flint and the Bussell & Erwin Manufacturing Company, upon his agreement and undertaking to hold and manage the property and the business of the said Douglass Manufacturing Company, therewith connected, for the interests, security, benefits and payments as thereinafter declared. The recital of the objects of the trust is as follows :
“ Now, therefore, know ye that I, the said Richard P; Bruff, do make known, admit, and declare that said premises and property and the business therewith connected, were so conveyed and transferred, sold, and delivered to me, and are held and to be held, managed and disposed of by me for the uses and benefits of the parties hereinafter named, and upon the trusts hereinafter specified, to wit:
“ First. To pay the expenses of the business.
“ Second. To pay to Barney, Butler & Parsons the following sums of money: [As it is conceded this amount was paid, it need not be recited.]
“Third. To pay Thompson J. S. Flint as follows : $61,290.08 and interest thereon, semi-annually, at the
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rate of seven per cent, per annum from the date hereof, as represented by a note of Thomas Douglass to said Flint, bearing even date herewith, payable twelve months from date, interest payable semi-annually.
“ Fourth. To pay Thompson J. S. Flint the sum of $13,483.81, as represented by a note of Thomas Douglass to said Flint, bearing even date herewith, payable twelve months from date. ®
“Fifth. To pay Thompson J. S. Flint $61,390.08 with interest thereon semi-annually, in twelve months from date, as represented by two notes of Thomas Douglass to said Flint, bearing even date herewith, each for the sum of $30,645.04, payable twelve months from date, with interest thereon, semi-annually.
“In case default shall be made in the payment of any of the said notes or sums of money to said Thompson J. S. Flint, or in case I shall not be in possession of sums sufficient to pay the same as and when they shall become due, I will pay over to the said Thompson J. S. Flint, his heirs, executors, administrators or assigns, such amount of money as I may have on hand, and at once proceed to sell the property on hand, both real and personal, at private sale or at auction, and to realize therefrom the largest amount possible, and shall apply the proceeds of the sale of said property in payment of said debts, notes and obligations due Thompson J. S. Flint, and if any balance shall thereafter remain, I will apply the same as hereinafter provided ; but if said notes, obligations and liabilities due to said Flint, shall be paid at maturity out of the proceeds or profits of the business, or otherwise than by sale of the property hereinbefore mentioned, then I hereby promise and agree to continue the trust upon the same terms and conditions as hereinbefore stated, for the benefit of the parties hereinafter mentioned.
“ First. To reimburse the Russell and Erwin Manufacturing Company all sums of money expended by
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them for the purchase of steel, delivered by them to me in the prosecution of the business of this trust herein specified.
“Second. To pay tlie Russell & Erwin Manufacturing Company $61,290.08 twenty-four months • from the date hereof, with interest thereon, at the rate of seven per cent, per annum, payable semi-annually, as represented by two notes of. Thomas Douglass, bearing even date herewith, payable twenty:four months from date, with interest thereon, semi-annually, each of said notes being for the sum of $30,645.04.
“Third. To pay to the said Russell & Erwin Manufacturing Company any other sum or sums of money which may be due to them from me on account of any matter or thing connected with this trust, or for any advances made by said company in or about the business or property of this trust.
“ In case default shall be made in the payment of any of said notes or sums of money, obligations or liabilities, due or to grow due to the said Russell & Erwin Manufacturing Company, or in case-1 shall not be in possession of funds, sufficient to pay the same as and when they become due, I will pay over to the parties entitled thereto such amount -of money as I may then have on hand, and will at once proceed to sell the property on hand, both real and personal, at private sale or at auction, and will realize therefrom the largest amount possible, and will apply the proceeds in payment of said debts, liabilities, notes and demands due to the Russell & Erwin Manufacturing Company, in the order, above set forth, and if any balance shall remain, it shall be paid over to Thomas Douglass ; and I will," after the payment of the foregoing sums of money se-" cured to be paid by this declaration, forthwith convey and deliver all and whatever property, right, thing or interest before. described or hereafter to be acquired by me in the prosecution of this trust, shall remain, in
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due and proper form to Thomas Douglass, of the city of Brooklyn, his heirs, executors, administrators or assigns.”
Bruff was the agent and general manager of the business of the Bussell & Erwin Manufacturing Company, in the city of New York. He received the conveyances, and executed the declaration of trust above referred to, and made the"advances recited without the authority, consent, or knowledge of the company. The officers of the company did not learn of it until about April, 1874. On account of this and other matters, Bruff was discharged from their employment. The business of the Douglass Manufacturing Company under the trust was not prosperous. The $18,483.81 recited in the fourth subdivision of the declaration of trust, was paid, but chiefly, it would seem, with borrowed money, a part of which was the money obtained upon the $7,000 note upon which this suit is brought. The sums provided for in the third and fifth subdivisions of the declaration of trust as to Flint, were not paid in accordance with the terms of the declaration, nor did Bruff have on hand the moneys with which to pay when they became due, January, 1874, nor were the Bussell & Erwin Company paid their advances, made from time to time for the purchase of steel and other supplies. On May 20, 1874, after much negotiation, Thomas Douglass executed to the Bussell & Erwin Manufacturing Company a deed, reciting the conveyances to Bruff, and his declaration of trust, discharging Bruff from obligation to him, and directing him to convey the property to the Bussell & Erwin Manufacturing Company. And the Bussell & Erwin Manufacturing Company on their part agreed and covenanted to apply and appropriate all the interest which came to them by virtue of that conveyance, to the payment of the indebtedness of Douglass and of the Douglass Manufacturing Company then existing, or
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which might thereafter arise, to themselves and towards their indemnification for liabilities on account of Douglass, or of the Douglass Manufacturing Company, and after such payment for all such matters, to pay over any surplus to Douglass. On July 23, 1874, the Russell & Erwin' Manufacturing Company, by Erwin, the president, Thompson J. S. Flint, and Thomas Douglass, united in a letter to Bruff, in which, after reciting the conveyances and the declaration of trust, and asserting that they were all the parties having an interest in the property held in trust, they authorized and required him to convey and transfer all the property held by him to Thompson J. S. Flint, and to the Russell & Erwin Manufacturing Company, “ for the consideration of the debts due to the said Flint and to the said Russell & Erwin Manufacturing Company, to be held by them in proportion to their respective claims.” At that time, the indebtedness to Flint amounted to about $113,000, and' the indebtedness to the Russell & Erwin Manufacturing Company amounted to about $147,000. On July 24, Bruff conveyed the property to Flint and to the Russell and Erwin - Manufacturing Company. On the same day, articles of association of the Douglass Manufacturing Company, as a body corporate, under the laws of Connecticut, with a capital stock of $280,000, were filed. To this company, so formed, Flint and the Russell & Erwin Manufacturing Company conveyed the property in question, the consideration named being $280,000, and being, in fact, the capital stock of the new company, which was distributed pro rata according to their interest. The Douglass Manufacturing Company, so incorporated, did business but a short time, unsuccessfully, when the mills at Seymour and at Arlington were sold, the former bringing $16,000 and the latter $5,000. A copy of the note on which this suit was brought, appears in the complaint, supra.
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According to the testimony of Thomas Douglass, called by the plaintiff, at least §4,918 of the §7,000 note was applied to the payment of the note of §13,483.81 to Flint, recited in the declaration of trust, which fell due January 16,1874. As the §7,000 note was given in renewal of other notes, the precise application of the proceeds of which does not appear, it is not clear whether, of the moneys borrowed upon the §7,000 note and the notes in renewal of which it was in part given, any greater sum than that stated above went towards the payment of the §13,483.81 note to Flint. Douglass testified generally that the money went “into the business” of the Douglass Manufacturing Company, but whether to pay the antecedent debts or to carry on the ordinary business of the company under the Bruff trust, does not appear, except as to the §4,916. Douglass testified that when the project of the formation of the new company was first mentioned, it was said that all of the property of the Douglass Manufacturing Company’s business was to be turned over to the new company, and that then Erwin said the business was to be prosecuted without any change or interruption, a complete inventory taken, and an entire account of the indebtedness, which was to be paid without discredit to the Douglass Manufacturing Company. He also testified that Stillman, who was the attorney who procured the loan and made out the trust papers and conveyances, confirmed Erwin in what he said. It nowhere appears in the evidence that Flint himself said anything like this. Erwin positively denies that he did. On the trial there was read the testimony of Mr. Erwin in the suit of Gautier against these defendants, in which he had testified, it seems, that he did say “ that he would consider and undertake to adjust anything that was a legal lien upon the property of the Douglass Manufacturing Company, incorporated ; in other words, that which appeared they were legally
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bound to pay.” At the close of the plaintiff’s testimony, the defendants moved for a nonsuit, on the ground that the facts proved did not impose upon them a liability to pay the note in question. The learned judge who presided on the trial, denied the motion, not only overruling the objections stated, but adding that the testimony of Douglass showed an express promise on the part of the defendants to pay, which the plaintiffs could avail themselves of under the decision in Lawrence v. Fox, and that the plaintiffs might amend their complaint, if so advised, alleging this express promise. There was a general exception to this decision. The judge finally submitted the case to the jury solely upon the question whether the defendants, upon a sufficient consideration, agreed to pay the plaintiffs’ claim against the Douglass Manufacturing Company as an inducement for the final transfer to them of the assets in Bruff’s hands.
W. F. Shepard, and Luther R. Marsh, for the appellants.
Owen & Gray, and John E. Parsons, for the respondents.

I am of opinion that this judgment cannot be sustained.

While the complaint might have been good on demurrer, it is somewhat indefinite and uncertain, and the proof fails to sustain it in the following particulars (1) The complaint substantially alleges that the defendants so “participated” in the business conducted by Bruff under the declaration of trust, as to be liable as partners. They did not participate. They had no share in the profits. They were simply cestuis que

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trust, with no actual participation in the conduct of the business, and with no right, or claim of right, except to have their loans, with interest, paid out of the proceeds of the business. (2) The declaration of trust by Bruff did not agree to pay the debts of the Douglass Manufacturing Company as alleged, but only the expenses of the trust business and the specific debts of the defendants. (3) Bruff wasno.t “compelled” (as alleged) certainly not by any duress to transfer to the defendants the assets of the Douglass Manufacturing Company in his hands as trustee, but made such transfer in consequence of negotiations, when it became apparent that he could not pay from the funds in his hands the note to the defendant Flint then due, or pay to the Russell and Erwin Manufacturing Company the moneys which, without their authority, he had advanced to the Douglass Manufacturing Company. (4) The complaint alleges that the defendants gave no consideration for the transfer to them. The indebtedness of the trust to them was the expressed, and a sufficient consideration. (5) The assets did not exceed the just claims of the defendants (as alleged), but were less. It must be remembered that there were prior mortgages upon the property.

I. The theory of the plaintiffs, as indicated by their complaint, and the argument of counsel on the appeal, was that they could sustain their cause of action on either of two grounds ; the first being that the defendants were so far partners and Bruff so far their agent in. the making of the-note sued upon, that they could be held upon it directly. The judge at the trial refused to permit that theory to go to the jury. They were not partners. In no aspect of the law of partnership could they be regarded as partners. Their only relation to the business of the Douglass Manufacturing Company was as cestuis que trust for loans and advances.(Cox v. Hickman, 8 H. of L. Cases, 301).

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The second theory, and that on which counsel seem chiefly to rely, was that inasmuch as the defendants had received from Bruff, the trustee, the assets in his hands as trustee, they were bound to pay the debts of the Douglass Manufacturing Company. In support of this theory was quoted the proposition : “ It is a universal rule that if a man purchases property of a trustee with notice of the trust, he shall be charged with the same trust in respect to the property as • the trustee from whom he purchased ’ ’ (Perry on Trusts, § 217). “And even if he pays a valuable consideration with notice of the equitable rights of a third person, he shall hold the property subject to the equitable interests of such person (Id. 828). “If the trustees convey the estate by a breach of trust, the cestui que trusts may follow the estate into the hands of a volunteer, whether he had notice of the trust or not, and into the hands of a purchaser for value if he have notice of the trust. The purchaser under such circumstances becomes a trustee and liable in the same manner as the person from whom he purchased, for knowing another’s right to the property, he throws away his money.” Many cases were cited in support of these propositions, which must be regarded as fundamental in the law of equity. Undoubtedly any person who purchased from the trustee in this case the property of the trust, with a knowledge of the trust, would have taken it subject to the trusts. But what application can these doctrines have to a case where the trustee with the consent of the creator of the trust and owner whatever equitable interest there was after the trust, .conveys to the cestui que trust themselves % All the parties to the trust instrument are parties to this transaction and bound by it. It cannot, therefore, be regarded as a wrongful disposition of the trust property by the trustee. There is nothing in the doctrines above quoted which would hold the purchaser of a trust es
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tate from a trustee, responsible for the general debts of the creator of the trust, unless the holders of such debts were included among the cestuis que trust. The general creditors of the Douglass Manufacturing Company were not included in Brufl’s declaration of trust, so that we may go to the full length of the proposition of law quoted, without their having any claim either in law or in equity against even a general grantee of the trustee. These defendants stand in a much better position, as I have indicated, than an ordinary grantee, by reason of their having been the only cestuis que trust named in the deed of trust. The persons who might pursue the trust property in the hands of grantees are themselves the grantees. The transactions proved, therefore, aside from the alleged express promise, imposed upon the defendants no legal obligation to pay the note in question or any other of the outside indebtedness of Thomas Douglass. They had advanced money and property to Douglass for which they were secured by the trust deed. The conditions on which the trust was to terminate had happened. Bruff had not the money to make the stipulated payments to them. The property must either be sacrificed at an auction or enforced private sale, or conveyed in the way it was. There can be little doubt that it was inadequate to pay the prior liens and the debts due these defendants. The defendants, therefore, had a right, Thomas Douglass consenting, to receive from Brufi! a conveyance of the property in consideration of their loans and advances. It would be a strange theory of law which could make the defendants, by reason of taking such a conveyance in payment of their own prior liens, responsible for all the floating debts of Thomas Douglass, however incurred, or even those incurred by him in connection with this particular business. The only trust with which, according to the strictest of the authorities, the defendants took
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that property, was the obligation to pay the expenses incurred by Bruff as trustee. It was Bruff’s first duty to pay the expenses out of the property coming into his hands. Whether or not he did so, we have no proof in this case. There is, however, proof .that the money received from the plaintiffs was not devoted to the payment of expenses, but, so far as it is traced, was devoted to the payment of a prior indebtedness— to wit: one of the notes held by Flint. Therefore, in no sense, can it be claimed that the debt due the plaintiffs constituted them cestuis que trust of the trust estate, so that they have a right to claim that the defendants held the property constructively as trustees for their benefit. And if they had such a right, they could not assert it in a common law action like this, but must go into a court of equity in an action for an accounting under the trust. It may be that as general creditors they would have a right to set aside a transfer to the defendants by proving it fraudulent as against creditors, but even proof that the transfer was fraudulent against creditors, would not give them a common law action on the case to recover the amount of their debt from the grantees.

It was urged on the argument that the note sued upon, being signed in the form ordinarily used in issuing commercial paper for the purpose of the business of the Douglass • Manufacturing Company, constituted a claim against the business done by that company under the trust. The commercial character of the paper can be relied on only as against the parties to it. Bruff signed the note'as treasurer of the Douglass Manufacturing Company. He was not in fact the treasurer of any such company, and it cannot be pretended that either of the defendants gave him authority to sign, this paper as such treasurer, or in any other way. He was not their agent in making that paper. Thomas Douglass, who participated in the transaction, whether

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called ‘‘Thomas Douglass” or the “Douglass Manufacturing Company,” would undoubtedly be bound by Bruff’s signature, not because Bruff, by reason of the trust, had any power to make such paper, but because Thomas Douglass, from his relation to the transaction, would be estopped from denying that Bruff was his agent in making the paper. That estoppel does not extend to the defendants. Bruff’s position as trustee certainly gave him no express authority to make paper or borrow money. If he had such authority, it must be implied from the nature of the business. His duty was confined to the application of moneys which came into his hands from the sale of goods, to the payment, first, of the expenses of the business, and then to the payment to the indebtedness to Flint, and then to the payment of the indebtedness to the Russell & Erwin Manufacturing Company. The making of notes at all by Bruff, and clearly the making of notes on which to borrow money to pay Douglass’s debts, was entirely outside of any authority conferred upon him by the trust. It cannot justly be claimed that by reason of anything which these defendants did, the plaintiffs took the note in question, and thereby these defendants became bound to pay it; and so that class of cases cited by the plaintiff’s counsel on the argument (The Exchange Bank v. Monteith, 17 Barb. 171 ; North River Bank v. Aymar, 3 Hill, 262 ; Engh v. Greenebaum, 2 Hun, 136 ; Bank of New York v. Bank of Ohio, 29 N. Y. 619 ; Case v. Mechanics’ Banking Association, 4 N. Y. 166 ), in all of which a principal sought to escape liability upon his notes in the hands of innocent holders, because an agent, either authorized to make notes for the principal, or supplied with notes made by the principal himself,-had either made more notes than he, the agent, was authorized to make, or had misapplied funds to his own use—do not apply to a case like this under consideration. They all pro
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ceedecl upon, the theory that where one of two innocent persons must suffer, it should be that one who placed it in the power of some third person to do the wrong which caused the injury. Neither Flint nor the Russell & Erwin Manufacturing Company put it in the power of Bruff to issue notes of the Douglass Manufacturing Company, as treasurer or as trustee, or in any other way, and therefore the principle which runs through all the cases "cited above, has no application to them. It might be applicable as against Thomas Douglass. The right of the plaintiffs to recover as against these defendants, depends, then, not on the commercial character of the paper on which they made their loan, but on the application of the moneys received by Douglass and by Bruff. So far as those moneys are traced at all, they went, not to pay the expenses of the business of the Douglass Manufacturing Company, under the trust, but to pay a part of an antecedent debt, to wit: the note to Flint. The debts of the Douglass Manufacturing Company are by no means necessarily the debts of the trust estate. The trust did not authorize Bruff to make debts. And when Bruff issued notes as an agent, the plaintiffs were bound to make inquiry as to the extent of his authority (North River Bank v. Aymar, supra). It will be observed that the note here sued on, is not signed by Richard P.’ Bruff, trustee, but by Richard P. Bruff as treasurer. So far, then, as appears from the face of the paper, it would seem that in making it Bruff was not acting as trustee, but in some other capacity, with some other authority, and under a title either assumed by himself or conferred upon him by Thomas Douglass. This case differs very essentially from that of Gautier against these same defendants, to which we are cited iñ the 13 Hun, 514 . Gautier had furnished to the trustee steel which was manufactured into augers, &c., and sold for the benefit of the trust estate. Without expressing concurrence with what
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seems to have been assumed by the learned judge who wrote the opinion in that case—that the debt of the plaintiffs was one which could be included under the head of “expenses of the business,” and therefore one subject to which the defendants received the conveyance of the trust property—the distinction between that transaction and this—where the plaintiffs made a loan of money which went, according to the evidence, to Thomas Douglass, was deposited in his own bank, and a portion of which (at least) he used, not in the expenses of the trust business but to pay his debt—is quite obvious.

2. Now comes the question whether this judgment can be sustained on the ground that the defendants expressly promised to pay the debt of the plaintiffs or the debts of the class to which it belonged. The objections to that are:

First. The plaintiffs in their complaint do not count on any express promise. The old doctrine that the judgment recovered must be secundum allegata et probata, has not been done away with by the Code, but still remains, and a judgment will not be sustained upon an issue which is not pleaded and litigated (Wright v. Delatield, 25 N. Y. 266 ; Kniffen v. McConnell, 30 Id. 285 ).

The plaintiffs made no motion to amend their complaint, but the judge at the trial, in denying a motion for a nonsuit made at the close of the plaintiff’s testimony, in part because of such proof as there then was of an express promise, said : “This promise, under the doctrine of Lawrence v. Fox, inured to the benefit of the plaintiffs so as to enable them to maintain an action upon it, and, if necessary, their complaint can be amended so as to embrace the express promise.” Nothing more occurred on this subject. The plaintiff's counsel said nothing indicating an acceptance of the permission of the court. The complaint was not in fact amended.. It stands now precisely as it originally

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stood. The quotation above recites everything which-the appeal book contains on that subject, except that the only question submitted to the jury was whether or not there was an express promise. All the testimony with reference to an express promise, the ruling of the judge above quoted, and his submission of the question to the jury, were against the defendant’s objection and exception. If the amendment was one which the judge at the trial had authority to make, it may be made by this court nunc pro tunc (Reeder v. Sayre, 70 N. Y. 190 ); but, as it seems to me, it was not such an amendment as he was authorized to make. The power of a judge on a trial to amend is confined to matters which do not substantially change a claim or a defense [Code, § 723). His power is very different from that of a judge sitting at special term. The latter may permit almost any amendment, upon terms ; but it is error for a judge at a trial to permit an amendment which substantially changes a' claim or a defense. If he thinks the interest of justice demands such a change, he should stop the trial and give the párty an opportunity to apply at special term for leave to amend upon terms. Here was an action on the case—that is, arising out of special circumstances. The amendment would have changed it to an action on express contract—certainly a substantial change, and one which comes within the inhibition of section 723 (Van Sycles v. Perry, 3 Robt. 621 ; Ford v. Ford, 53 Barb. 525 ; Smith v. Rathburn, 13 Hun, 47 , 53 ; Union Bank v. Mott, 19 How. Pr. 267 ; Phillips v. Melville, 17 Hun, 211 : Joslyn v. Joslyn, 9 Id. 388; Sinclair v. Neil, 1 Id. 80).

As the amendment was one which the judge at the trial had no authority to make, it cannot be made now, and we must consider the case on the complaint as originally drawn. Under that, the evidence as to an express promise was not secundum allegata, and

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should not have been received, nor should a recovery have been permitted on such a ground.

Second. Aside from the question of pleading, can this judgment be sustained on the ground that the defendants promised to pay the debt upon which the judgment was recovered % I think not. The doctrine of Lawrence v. Fox ( 20 N. Y. 268 ), that where A loans money to B upon B’s promise to pay A’s debt to C, G may maintain an action on the promise against B, will not be questioned. It need not be. But it may be said that that decision was by a divided court—Com-stock and Grover, JJ., dissenting—and that the court of appeals have ever since indicated a disposition not to extend the rule there adopted (Simson v. Brown, 68 N. Y. 355 ; Vrooman v. Turner, 69 Id. 280, Opin. by Allen, J.). It introduced an anomaly, contrary to all previous notions of privity of contract, and in England the doctrine, which once got a foothold on certain dieta, has since been entirely overthrown. It is, however, the settled law of this State. The question here is about its application to the facts of this case. The first objection to its application is that the defendants made no promise whatever to Bruff, the person who made the transfer (from whom, if any one, the consideration moved). And it is not proved that what they are alleged to have said to Douglass, was ever communicated to Bruff as the consideration or inducement of the transfer by him. To say that Erwin’s and Flint’s promise to Douglass to pay Douglass’s debts, not made to Bruff or communicated to Bruff, was the inducement for Bruff to convey, which will support an action by Douglass’ creditors against Erwin and Flint, is obviously an extension of the doctrine laid down in Lawrence v. Fox which it will not bear (Vrooman v. Turner, supra).

A most liberal construction of the doctrines of that case could not establish a privity of contract between the plaintiffs and defendants here. The consideration,

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even admitting there was any, was too remote. The next objection is that the agreement between Douglass hnd the Russell & Erwin. Manufacturing Company as to what each should do, was in writing. I refer to the deed of indenture, dated and executed May 20, 1874, and exhibited to Bruff on that day. (Exhibit K.) That deed, after reciting the conveyance to Bruff of the property at Seymour and Arlington, Bruff’s declaration of trust, the indebtedness of Douglass in his own name, and in the name of the Douglass Manufacturing Company, to the Russell & Erwin Company, in consideration of the premises conveys to the Russell & Erwin company all Douglass’ right, title and interest to the premises, property and proceeds, and in any trust fund in the hands of Bruff—in short, everything in the hands of Bruff as trustee in any way connected with the Douglass Manufacturing Company, and calls upon Bruff to execute conveyances of the property in his hands and to transfer it to the Russell & Erwin Company. The Russell & Erwin Company on their part agreed that they would apply and appropriate the property to them- so conveyed, toward the accrued indebtedness of Douglass and the Douglass Manufacturing Company to them, and to the payment and indemnification of themselves for any liabilities under which they were, on account of Douglass or the Douglass Manufacturing Company, and for costs, damages, &c., and that, after so paying and idemnifying themselves, they would pay to Douglass any surplus or balance of said property that should remain, &c. This deed is signed by all these parties, was executed and was recorded. Certainly all prior negotiations were merged in it. It is a general rule of evidence and of contracts, as well settled as it is salutary, that a written contract executed between parties, supersedes all their prior negotiations and agreements on the same subject. This is especially true where the final contract is an executed one, and those -which pre
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ceded it were merely executory, and more especially where what preceded were merely oral discussions and negotiations. This deed says' nothing about the payment by the Russell & Erwin Manufacturing Company of the debts of the Douglass Manufacturing Company. Any subsequent negotiations, unless moving upon some new consideration, were void. After this deed was executed, Douglass had nothing to convey, as the consideration for any new agreement. At any rate, there is no proof that he did convey or give anything. What consideration was there, then, to support any promise by the Russell & Erwin Company to Douglass, made in July, to pay the debts of the Douglass Manufacturing Company % Without consideration, any promise they made to pay the debt of the Douglass Manufacturing Company, was void under the statute of frauds (Belknap v. Bender, 75 N. Y. 446 ; Simson v. Brown, supra).

It comes to this: We are asked to hold the defendants liable for a debt of Douglass to the plaintiffs, because of an alleged promise by the defendants to Douglass without consideration, or because Bruff conveyed to the defendants, without any promise being made to him, the property to which, as cestuis que trust and owners of the equity, they were already entitled. On May 20, 1874, the defendants became the legal owners of whatever equity Douglass had in the property. They were already the cestuis que trust. Briefly stated, then, whatever negotiations occurred between the Russell & Erwin Manufacturing Company and Douglass, were merged in the deed of May 20, 1874. At any rate, parol proof must not be permitted to vary the obligations taken upon themselves by the parties to that instrument. Whatever negotiations occurred after that deed was executed, between Erwin and Douglass, were without1 consideration; and the performance of an .obvious duty by Bruff without any knowledge of the

p. 524
alleged promise from the Bussell & Erwin Manufacturing Company to Douglass, cannot be regarded as a consideration and inducement to support a promise from the Bussell & Erwin Manufacturing Company to Douglass, to pay Douglass’ debts (See Belknap v. Bender, supra).

Third. What was said in this case, viewed in the aspect most favorable to the plaintiffs, did not amount to a promise that the defendants, out of their own moneys, would pay the plaintiffs’ claim. The testimony of the promise relied on is as follows :

“Q. In any of these talks was anything .said, and if so, what, as to what should be done with this indebt- • edness if all the property were transferred %
“A. Erwin said the business was to be prosecuted without change or interruption, a complete inventory taken, an entire account of the indebtedness which was to be paid without discredit to the Douglass Manufacturing Company. Mr. Stillman had a list of the liabilities, and confirmed what Erwin said to me—that all this indebtedness should be paid. This was before the property was completely turned over to the Bussell & Erwin Manufacturing Company and Mr. Flint. The indebtedness, outside of the Bussell & Erwin Manufacturing Company and Mr. Flint, amounted, I think, to §114,000. There was due the Bussell & Erwin Manufacturing Company §109,000, to Flint $91,000, to Ames §61,290.08. The entire amount was $391,000, viz. : due Flint $91,835.12, Mr. Ames §61.290.08. The Bussell & Erwin Manufacturing Company $124,053.50. All others §114,000. The consideration of the deed from Flint and the Bussell & Erwin Manufacturing Company to the Douglass Manufacturing Company, was the stock of the company.”

According to other testimony of Douglass, it occurred. “within forty-eight hours ’’ of the time when the Douglass Manufacturing Company, incorporated, was

p. 525
formed. That company was formed July 24, 1874. The conversation occurred at Seymour at the time when Mr. Stillman went there to make some examination as to how he could secure Mr. Flint, and. Mr. Erwin was there for the purpose of securing the payment of the money due the Bussell & Erwin Manufacturing Company. It must constantly be borne in mind that the Bussell & Erwin Manufacturing Company at that time had a conveyance of all Douglass’ interest, executed the 20th of May previous. Stillman suggested the formation of a new company, and the testimony, fairly construed, indicates that they were discussing what should be done in the event of the formation of such a company. Is it, then, a fair construction of the testimony of Douglass, above quoted, to say that Mr. Erwin meant to engage that the Russell & JCrwin Manufacturing Company would, out of their own moneys, pay the entire floating indebtedness of the Douglass Manufacturing Company, viz., $114,000 ? Or that Mr. Stillman, who was there for no such purpose, by confirming what Mr. Erwin said,” meant to engage that Thompson J. S. Flint would, out of his own money, pay the debts of the Douglass Manufacturing Company? I think not. The testimony in the case all clearly shows that Thompson J. S. Flint was not present at any of these interviews, and that he personally made no promise whatever of this character. The claim against him in this action, rests upon what was said by Stillman, above quoted. There is no testimony in the case from which the inference can be fairly drawn that Mr. Stillman was so far his attorney in fact, as that his suggestion confirming Erwin,” could bind Mr. Flint to pay out of his own pocket the antecedent debt of another to the extent of $114,000. Without reciting the other testimony in relation to this subject, it seems to me a perversion of language to' claim that these defendants engaged to pay with their
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own money the debts of the Douglass Manufacturing Company. At the very best, it was not an absolute and positive promise to pay to the plaintiffs, but a promise to Thomas Douglass to protect the Douglass Manufacturing Company. That was not enough to bring the promise within the rule laid down in Lawrence v. Fox (Garnsey v. Rogers, 47 N. Y. 233 ; Simson v. Brown, supra; Johnson v. Morgan, 68 N. Y. 494 ).

Fourth. The defendants, Woodruff, Erwin, the Flints, all deny that they made the promise testified to by Douglass ; so that the weight of evidence is, in my judgment, against the plaintiff’s claim. Certainly so when the fair interpretation of Douglass’ testimony standing alone does not clearly show that they meant to contract to pay the plaintiff’s claim.

The judgment should be reversed, and a new trial ordered, with costs to abide the event.

Sedgwick, Ch. J., and Speir, J. concurred.

Cases cited