Case ID: nys_80/html/0347-01.html
Source: Caselaw Access Project
Author: {"author": "EAUGHEIN, J. O’BRIEN, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

RATHBORNE v. HATCH.
    (Supreme Court, Appellate Division, First Department.
    February 6, 1903.)
    1. Account Books — As Evidence.
    In a suit for commissions and damages by a firm of brokers employed by defendant to sell certain stock, defendant having failed to deliver if after plaintiffs had sold it, and they being obliged to purchase other stock to make the delivery, plaintiffs’ account books are not admissible as evidence of the selling and purchase price; it not- appearing that a statement of the account was mailed to defendant, so that, he having retained it, it might become an account stated, but merely that a statement was delivered to a boy to take to defendant; and the member of the firm who made the sale and purchase on the stock exchange not testifying that he examined the entries in the books when he recollected the figures, so that he knew that they were correct, but merely that he gave the figures to the telephone clerk on the exchange to have them telephoned to plaintiff’s office, according to the custom, and the bookkeeper testifying that he made the entries from the message from the telephone clerk, and the telephone clerk not testifying that he transmitted the message as he received it from the broker.
    2. Same.
    The rule relating to admission of shopbooks of services rendered, or the sale and delivery of merchandise on credit, does not extend to purchases from or sales to third persons by an agent, in an action between him and his principal; and, if it did, it would be necessary to show that the agent, whose books were sought to be introduced, kept fair and honest books, by the testimony of persons who had dealt with him and settled by his books.
    O’Brien, J., dissenting in part.
    Appeal from trial term, New York county^
    Action by Charles R. Rathborne against Edward Hatch. From a judgment for plaintiff on a-decision on a trial without a jury,'defendant appeals. Reversed.
    See 73 N. Y. Supp. 859.
    Argued before VAN BRUNT, P. J., and McLAUGHLIN, PATTERSON, O’BRIEN, and EAUGHEIN, JJ.
    Edward W. S. Johnston, for appellant.
    George E. Morgan, for respondent.
   EAUGHEIN, J.

The action is brought on an assigned claim of C. R. Rathborne & Co. for a balance alleged to have been due and owing to them from the defendant on account of certain stock transactions. The precise claim is that Rathborne & Co. were employed by the defendant to sell 900 shares of the capital stock of the Northern Pacific Railway Company and 200 shares of the capital stock of the Chicago, Burlington & Quincy Railroad Company; that they sold the stock, and notified the defendant of such sale, and requested that he deliver the stock to them to fulfill the terms of their sale; that he failed to do so within a reasonable time, and they were obliged to purchase stock in order to make the delivery to the purchaser; that thereby the defendant became liable to them for their commissions, and the-difference between the amount for which they sold the stock and the amount they were obliged to pay for stock to fulfill the terms of sale, aggregating the sum of $17,155.78, together with interest thereon from the 9th day of March, 1900, besides costs. The answer put in issue the material allegations of the complaint, and set up a counterclaim for damages.

The principal question presented on the appeal relates to an exception to the introduction of the account books of Rathborne & Co. as evidence of the sales of the stock by them, and' of the selling price, and of the purchase of the stock by them, and of the purchase price. The bookkeeper of Rathborne & Co. testified that he sent notices by mail of the purchases and sales to the defendant, and kept copies thereof; but it appeared that he did not mail the notices, but delivered them to a boy for that purpose, and had no personal knowledge as to whether they were mailed or not. It might be inferred, however, from a letter which the defendant wrote Rathborne & Co. on the 18th day of July, 1900, that he had in some manner received information concerning these transactions, for in the letter he acknowledged that he was indebted to them, and promised to settle. Nevertheless his letter throws no light on the question as to the amount of the indebtedness, and no evidence was offered tending to show that he had knowledge of the precise amount of their claim, or of. any other admission on his part concerning the same. If the plaintiff had shown the mailing of an account by Rathborne & Co. to the defendant of the purchases and sales, and of their claim for commissions, showing the balance owing, it might be inferred that the defendant’s letter related thereto, and constituted an admission of the correctness thereof; and if he retained the statement of the account, without objecting thereto, after reasonable opportunity to examine the same -and discover any error, it probably would have constituted an account stated. Spellman v. Muehfeld, 166 N. Y. 245, 59 N. E. 817. But neither of these things was shown. Proof was made of the employment of Rathborne & Co. to make the sales, that the sales were made pursuant to such employment, that the defendant failed to furnish stock for the purpose of making delivery to the purchaser, and that Rathborne & Co. purchased stock for that purpose. There was, however, no evidence, other than the account books, of the prices at which the stock was sold and the purchases were made. The member of the firm who made the sales and purchases on the stock exchange testified that he gave the figures to the telephone clerk on the exchange for the purpose of having the same phoned to the office of the brokers, according to the custom; and the bookkeeper testified that he made the entries of these transactions in the books from information received by phone from the telephone clerk, and that the entries were in accordance with the information thus received. The telephone clerk was in court, but was not called or sworn as a witness, and there was no evidence to show that he correctly transmitted the information received. In this state of the proof, the books were offered and received in evidence over the defendant’s objection that they were incompetent and hearsay, and that a proper foundation had not been laid for their introduction; and .the particulars in which this foundation had not been laid were specifically and fully stated in the objections, and, among other things, that it had not been shown that Rathborne Sz: Co. kept fair and honest accounts, and also that the rule admitting account books was not applicable to principal and agent. We are of opinion that the reception of these account books was error, and, there being no other basis for the recovery, the judgment cannot stand.

If it appeared that the broker who made the sales was unable to recollect the terms thereof, but had examined the entries made in the books at a time when he did recollect the figures, so that he knew that the entries were correct, and also that an examination of the books would not refresh his recollection so as to enable him to testify as to the figures, or if the telephone clerk had been sworn and testified that he transmitted the information to the bookkeeper correctly as he received it from the broker, then, doubtless, the books would have been competent evidence, in connection with the other testimony, to show the essential facts. 1 Greenl. Ev. (16th Ed.) §§ 120a, 120b; Bank v. Culver, 2 Hill, 531; Merrill v. Railroad Co., 16 Wend. 586, 30 Am. Dec. 130; Clark v. Bank, 32 App. Div. 323, 52 N. Y. Supp. 1064, affirmed in 164 N. Y. 498, 58 N. E. 659; Bank.v. Weed, 39 App. Div. 604, 57 N. Y. Supp. 706; Powell v. Murphy, 18 App. Div. 25, 45 N. Y. Supp. 374; Abele v. Falk, 28 App. Div. 191, 50 N. Y. Supp. 876; Bloomington Min. Co. v. Brooklyn Hygienic Ice Co., 58 App. Div. 66, 68 N. Y. Supp. 699; affirmed in 171 N. Y. 673, 64 N. E. 1118; Mayor, etc., of city of New York v. Second Ave. R. Co., ro2 N. Y. 579, 7 N. E. 905, 55 Am. Rep. 839. The proof, however, was insufficient to make them admissible upon either of these grounds. The only other theory upon which they could in any view be admissible, as not obnoxious to the rule against hearsay evidence and evidence made by a party in his own behalf, is that they fell within the rule relating to' the admission of shopbooks of services rendered, or the sale and delivery of merchandise on credit. This rule has been somewhat extended, but no authority has been cited, and we find none, in this state, extending its application tO' purchases from or sales to third parties by an agent in an action between him and his principal. It has been held not to apply to accounts of cash items or transactions, even between the parties. Dusenburv. v. Hoadley (Sup.) 20 N. Y. Supp. 911; Smith v. Rentz, 131 N. Y. 169, 30 N. E. 54, 15 L. R. A. 138. In Congdon & Aylesworth Co. v. Sheehan, 11 App. Div. 456, 42 N. Y. Supp. 255, it was held that this rule was not applicable to the account books of a corporation, and that such books w'ere not admissible as evidence of sales or deliveries. In Shipman v. Glynn, 31 App. Div. 425, 430, 52 N. Y. Supp. 691, it was held that the account books of a party are not admissible as evidence of sales and delivery of goods, where the delivery was made upon his order, but by a third party. The court of appeals in Smith v. Rentz, supra, expressly declare that this rule should not be extended. It would appear, therefore, that.this rule should not apply to the account books of a broker, showing sales to and purchases of third parties, in an action between him and his principal. But if the rule were applicable, it would not avail the plaintiff. The rule as originally promulgated in the leading ■case of Vosburgh v. Thayer, 12 Johns. 461, required proof as a foundation for the introduction of the books first, that the party had no clerk; second, that some of the articles sold had been delivered; third, that they are the account books of the party; and, fourth, by persons who have dealt with him and settled by his books, that the party keeps fair and honest accounts. Where this rule is applicable, the courts have rigidly adhered to the requirement that this preliminary proof must still be made, before the books are admissible as evidence. Rice, Ev. p. 815; McGoldrick v. Traphagen, 88 N. Y. 334; Smith v. Smith, 163 N. Y. 168, 57 N. E. 300, 52 R. R. A. 545; Smith v. Rentz, supra; Stone v. Cronin, 71 App. Div. 565, 76 N. Y. Supp. 605; Powell v. Murphy, supra. It was shown that the account book received in evidence was the purchase and sales book of Rathborne Sr Co., and it probably sufficiently appeared that they kept no clerk, within the contemplation of this rule which relates to a clerk who has personal knowledge of the transactions. Smith v. Smith, supra; McGoldrick v. Traphagen, supra. But there was a complete failure of evidence that Rathborne Sr Co. kept fair and honest books, by any person who had dealt with them and settled by their books.

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

PATTERSON and McRAUGHRIN, JJ., concur. VAN BRUNT, P. J., concurs in result.

O’BRIEN, J.

(dissenting). In his answer the defendant admitted that he authorized the firm of C. R. Rathborne Sr Co. to sell short 900 shares of the Northern Pacific Railway" Company and 200 shares of Chicago, Burlington Sr Quincy Railroad Company stock, and averred that thereafter, without his consent, authority, or knowledge, such firm bought in for his account the same stock. The answer further alleges that, if the firm sold and thereafter purchased the stock, it was done without the consent, knowledge, or authority of defendant, and without previous notice of intention so to do to defendant. Upon the trial the defendant made no defense, introducing no evidence, and placed his reliance mainly upon what he could find vulnerable in the plaintiff’s case. Taking the form of the answer, supplemented as it was by testimony that was unobjectionable, and enforced by the defendant’s letter admitting liability, there was sufficient foundation for the inference that, by authority and with knowledge of the defendant, the plaintiff’s firm had first sold short, and thereafter bought in to cover for the account of the defendant, the stocks in question. What remained in doubt were the prices at which the stocks were sold and the purchases made; and, for the purpose of fixing such prices, the only evidence of which, it seems to me, the case was susceptible, was introduced, namely, the account books of the firm, consisting of the original entries made by thé bookkeeper who had charge of making them, and who testified that they were made at the time from information given him by the telephone boy in the office, who received it from the telephone messenger in the exchange, who, in turn, received the information from the exchange member of the firm. This testimony was corroborated by the plaintiff, who was the exchange member, and gave the information. The two telephone boys were not called, but to do so would have been a useless formality, because, from the nature of the transactions, it would be impossible for them, in the ordinary run of business, to remember any particular transaction upon a particular day; and more especially would it be impossible for them to recall the prices at which the stocks were sold, and subsequently purchased, and which they sent and received over the telephone and gave to the bookkeeper. The telephone clerks were but part of a'system or means of communication between the exchange member of the firm and the bookkeeper, by which the former was enabled to communicate his transactions on the exchange to his office. It would be as idle to call them, as it would be, with reference to the sending of a letter or telegram, to call the postman who regularly receives and delivers written messages, or the telegraph operator who regularly forwards and delivers communications by wire, because neither of the clerks could add any certainty to the testimony of the plaintiff who made the sale or purchase on the exchange, supplemented by the testimony of the bookkeeper who received the information thereof, and, as part of the transaction, entered it at the time in the firm’s books.

I agree with Mr. Justice LAUGHLIN that the rule that obtains with reference to introducing shopkeepers’ and tradesmen’s books in evidence has no application; and for the simple reason that such a rule, if applied to -the books of account of large business enterprises, would in nearly every instance operate as a denial of justice. The old common-law rule of" evidence as to tradesmen’s books is no longer applicable to most of our modern methods of carrying on large and extensive business transactions. The position' of the ancient shopkeeper, who himself sold and delivered his goods direct to the customer, and who made his own memoranda in books, was enlarged when, with the increase of business, he was obliged to employ a bookkeeper or a clerk, and to resort to entries in books of account made by the clerk or bookkeeper, because in no other way could he keep track of the growth in his business. With the introduction of department stores, embracing a number of different kinds of trade, and the information of exchanges, with their indefinite extension of daily transactions, and of large- corporations, whose business is conducted through numerous agencies, the old rule with respect to them can have no place, and it is useless longer to refer to it as in any sense applicable to such modern methods of doing business. It is inconceivable, with the growth in every other direction, that the law itself should not grow so as to meet the changed conditions; and it seems to me, in such a case as this, a waste of time to expend labor in the discussion of old rules which can have no possible bearing upon or application ■.to-the reasons or principles which should govern in determining the extent to which books of account, such as are here involved, may be resorted to as evidence. It is, of course, necessary that a proper foundation for their introduction should be laid, in order that their verity may be established; but when this is done by the most complete and satisfactory proof which, from the nature of the business, can be obtained, then the reason which permits the best evidence to be given should be held as applicable to such books of account, properly authenticated, as to any other kind of evidence. I think, therefore, that where a proper foundation is laid, as in this case, for introducing entries in books of account of the nature and character of those here involved, and which are resorted to merely for the purpose of fixing the items or prices at which the stocks were sold and bought, they are competent, To render them, admissible for that purpose, it must be shown that the entries are original entries, proven to be such by the person who made them, in the usual course of business, made at the time the transactions they record took place, and are a true and correct record of such transactions. I think that such a foundation was laid in this case, and that, under the authorities, as it was the best evidence of which the case was susceptible, such entries were not hearsay, but were original evidence, and therefore admissible for the purpose for which they were introduced. Bank v. Brown, 165 N. Y. 216, 59 N. E. I, 53 L. R. A. 513; Mayor, etc., of City of New York v. Second Ave. R. Co., 102 N. Y. 572, 7 N. E. 905, 55 Am. Rep; 839.

I dissent, therefore, from the conclusion of the majority of the court, thinking, as I do, that where there was a virtual admission of the transactions having occurred, and all that was required from the books was a definite statement of the prices at which the stock was sold and bought, it was competent, because it was the best evidence of which the case was susceptible, to permit resort to the books for the purpose of ascertaining such prices.