Case ID: ad_63/html/0072-01.html
Source: Caselaw Access Project
Author: {"author": "Ingraham, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Lyman G. Bloomingdale and Joseph B. Bloomingdale, Appellants. v. Southern National Bank of New York, Respondent.
    
      Rescission of a transaction—action to recover money paid—when a return of the securities received on such payment must he first tendered —proof required of fraud in inducing the payment.
    
    Where, prior to the maturity of a note which has been discounted by a bank, the maker of the note requests a third party to take it up, representing that it is secured by certain certificates, and that a number of barrels of whisky have been deposited in its warehouses which will be delivered to the holder of the certificates, and the third party applies for information in respect to the certificates to the president of the bank and, upon being informed by him that the certificates are all right in every respect, takes up at its maturity the note which is marked paid by the bank (thereby releasing an indorser thereon), and is returned to the maker, and accepts a new note of the maker, and it subsequently appears that the certificates are to a great extent fraudulent, the third party cannot, where there is no allegation that the president of the bank made the representations fraudulently or with knowledge that they were false, rescind the transaction and recover the amount paid to the bank for the note discounted by it, certainly without tendering to the bank the note and certificates.
    
      Semble, that in the absence of fraud on the part of the president of the bank, in making the representation concerning the certificates, which would sustain an action against the bank for deceit, an action could not be maintained to recover the money paid to the bank.
    Appeal by the plaintiffs, Lyman G. Bloomingdale and another,.from a judgment of the Supreme Court in favor of the defendant, entered in the office of, the clerk of the county of New York on the 1st day of May, 1900, upon the verdict of a jury, and also-from an order entered in said clerk’s office on the 28th day of May, 1900, denying the plaintiffs’ motion for a new trial made upon the minutes.
    
      S. Livingston Samuels, for the appellants.
    
      B. F. Einstein, for the respondent.
   Ingraham, J.:

The facts upon which the claim of the plaintiffs arose are as follows : Prior to December, 1895, the defendant had discounted a note made by the Belle of Nelson Distilling Company for $5,000, which seems to have been indorsed by H. D. Nessber & Co. and secured by what purported to be certificates of the maker of the note that certain whisky had been deposited in its warehouses which were to be delivered "to the holder of the certificates. Some time before the makers were notified that the note had to be paid at maturity, and a Mr. Johnson, who was the vice-president of the maker of the note, was introduced to the financial manager of the plaintiffs by a Mr. Nessber, a connection of one of the plaintiffs, who was an indorser on the note, and requested the plaintiffs to take the loan of $5,000 “ off the hands of the Southern National Bank,” stating that “ there was a collateral note which attached 500 barrels of Belle of Nelson Whiskey of 1893.” The manager of the plaintiffs said that he would investigate, and subséquently instructed a clerk of the plaintiffs to go to the bank. Bamberger, the clerk, then went to the bank and saw the president. This was a few days before December twelfth, when the note became due. Bamberger testified that he told the president that he represented the plaintiffs; that “Mr. Johnson, the vice-president of the Belle of Nelson Distillery Company, had called upon us and told us that he had a loan for $5,000 maturing at the bank on December 12th ; that this note had attached to it as collateral certificates for 500 barrels of whiskey, and I was very anxious to know what he knew about this whiskey, as we knew comparatively little about it. Mr. Rosenwald told me that he knew these certificates to be all right in every respect; that if sold at auction they would realize ten dollars per barrel, and that he knew of no better investment than that. I incidentally remarked to him why it was they did not renew the loan themselves, and he said his reserves had fallen too low to permit him to do so.”

This conversation was reported to the plaintiffs’ manager, who testified that he subsequently called upon Rosenwald, the president of the bank, and his testimony as to the interview is as follows: “ I went into his office, which was in the back room of the bank, and said, 1 Mr. Rosenwald, there is a loan due of the Belle of Nelson Distilling Company in your bankof $5,000, and I understand there are 500 barrels of whiskey as collateral with this loan, and I am asked by Mr. Johnson whether I would care to take it off your hands, and I would like you to tell me please what you know of the certificates and if everything is all right,’ and he answered, ‘ Mr, Kraus, there is no better security in the City of New York. I know it is perfectly good in every respect, and you are perfectly safe in making this loan, and was it not for the reserve of the bank being somewhat short I would make the loan myself again,’ and I said, 4 Mr. Rosenwald, I know nothing about this whiskey, except 50. barrels of" whiskey which I had some trouble in getting from Louisville, and I am somewhat afraid that if everything is not. all right I wouldn’t make that loan,’ and he said, 4 You are perfectly safe, and I am. positive that everything is all right, and you can do it, and it is a safe note.’ ”, ,

The president of the defendant then produced and showed to the plaintiffs’ manager the certificates which called for 500 barrels of whisky. On December twelfth, the day that the note became due,. .the plaintiff directed Bamberger to go down to the bank, take up the loan and bring back the certificates, giving him a check for $5,000 for that purpose. Bamberger, upon the delivery of the check,. received the note from the Southern National Bank and the certificates in question. . This note was stamped by the bank as paid. The certificates certified that there had been deposited in the bonded warehouse of the company 500 barrels of whiskey deliverable only upon the return of the certificates properly indorsed, and on payment of the State and government taxes which might be due on said whisky, and storage charges. The plaintiffs before they sent to the defendant had received from Johnson a new note of the distillery company indorsed by H. D. Nessber & Co., and the note held by the defendant was returned to the maker, the indorsement thereon being canceled. Subsequently it appeared that this distillery company had issued fraudulent certificates, and that the various certify cates which purported to represent 500 barrels of whisky upon which the plaintiff made the loan complained of, in reality represented but 43 barrels, that being all that the plaintiffs had ever Obtained from the distillery company upon these certificates.

After the plaintiffs had information of the fraud committed by the maker of this note, they sent Bamberger to Louisville to ascertain whether the certificates were good or bad. They employed a firm of lawyers at Louisville, and left the matter in their hands. Subse-. quently it appeared that certificates for forty-three barrels of whisky represented actual whisky, but the rest of the certificates did not. The plaintiffs then surrendered the certificates for the forty-three barrels and received the whisky represented by them, and subsequently sold that whisky and received the proceeds.

There is no allegation in the complaint, nor was there the slightest evidence to show that if the president of the bank made the representations testified to he did so fraudulently, or with knowledge that they were false, or with any intent to defraud or deceive the plaintiffs. So far as the action is sought to be - sustained as an action to recover damages for deceit, neither the allegations of the complaint nor the proof would justify the court in submitting any -question to the jury.

The plaintiffs claim that they were entitled to rescind the transaction and recover back the amount paid for the note. The complaint, however, did not allege a rescission. There was no allegation that the plaintiffs tendered the note and certificates back to the bank and demanded a return of the money they had paid. The transaction between the plaintiffs and the bank seems to have been a payment of the note by the maker from the proceeds of a discount of a mew note by the plaintiffs. The note which had become due and was held by the defendant was stamped paid by the defendant, and in that condition received by the plaintiffs without objection and delivered to the maker. The transaction was in effect a payment of the note by the plaintiffs as the agents of the maker, the defendant at the time transferring to the plaintiffs as such agents the securities which it had held as collateral. It is somewhat difficult to see what there was to rescind or upon what basis the plaintiffs could recover from the defendant the money paid by the maker óf the note to discharge its indebtedness. In the absence of evidence of fraud which would sustain an action for deceit, I do not see how any action can be maintained against the bank which would entitle the plaintiffs to recover from it money which they , had paid to discharge the indebtedness upon the note. But, assuming that there was something that could be rescinded, the bank had a right before the plaintiff could insist upon such a rescission to have tendered back all that plaintiffs had received from the bank, and to be put again in the same position that it would have been in if the transfer had not been made. There is no pretense that this was done. The note that was delivered by the bank to the plaintiffs was never tendered to the hank.' By the act of the defendant in accepting the note as paid and not protesting it for non-payment, the indorser was discharged; and further, the certificates which represented forty-three barrels of whisky do not appear to. have been tendered to the bank; That whisky was received and actually sold by the plaintiffs. Nothing is better settled than that, where a party has, a right to .rescind a contract upon the ground of false or misleading misrepresentations, he must make his election promptly upon discovering the fraud, and must tender back to the other party all that he has. received under the contract which he. seeks to rescind. The only evidence of any tender ■ to the defendant is contained in the testimony of Bamberger. He says that after he returned from Louisville, where he had been informed by the assignee of the Belle of Nelson Company, “ that our five hundred barrels of Belle of Nelson whiskey were bogus. I told Mr. Rosenwald, I am sorry to return to you the five hundred barrels of whiskey because they are bogus and I want you to' return our $5,000 to me. I had the certificates and note with me. Mr. Rosenwald then said, ‘ Why, I have almost lost $20,000 on those people and you will have to take your medicine the same as I will.’ That ended the interview.”

This evidence was stricken out as not within the pleadings ; but if allowed to stand it would not have entitled the plaintiffs to recover. The court, after striking out this testimony, denied the motion of the defendant to dismiss the complaint, although without it there was clearly no cause of action alleged or proved, and submitted to the jury the question whether or not they believed the witnesses Kraus alid Bamberger as to the representations made by the president of the defendant, and instructed the jury that if they believed that testimony and believed the statements made were false, the' plaintiffs were entitled to recover.. The jury found a verdict for the defendant, thus refusing to credit this story of the alleged interviews with1 the president of the defendant. The plaintiffs attack this direction upon the ground that the court should have directed a verdict in their favor as the jury were bound to believe the testimony of Kraus and' Bamberger, it being uncontradicted. We think that with the testimony of Kraus and Bamberger no cause of action was found. But assuming that a cause of action was proved, this direction was not error. There is no evidence that any representations were made of any kind except the testimony of Kraus and Bamberger. Kraus was the manager of the finance department of the plaintiffs’ business, and was the one who made the arrangements by which the new notes were discounted and the old notes held by the defendant ¡laid. He was directly interested in the transaction, and there was evidence making it doubtful whether he ever really went to the bank at all. The president of the bank is dead and thus unable to contradict the testimony of either of these witnesses as to anything that they say about him. The other witness, Bamberger, is a clerk in the plaintiffs’ employ under Kraus, and he still continues in that position. Neither of these witnesses could be said to have been disinterested; and considering the fact that the president of the bank is dead and unable to contradict them; that they both held positions under the plaintiffs which could be terminated at any moment if they should fail to give satisfactory testimony, and that the transaction by which the plaintiffs have lost this $5,000 was undertaken by Kraus and assisted through by Bamberger, the truth of the testimony of these witnesses was properly submitted to the jury; and the jury having refused to credit them, I should not be ■at all inclined to disturb their verdict.

I think on the whole case no error was committed which would justify a reversal, and the judgment and order denying a new trial should be affirmed, with costs.

Van Brunt, P. J., and O’Brien, J., concurred; Patterson and Laughlin, JJ., concurred in result.

Judgment and order affirmed, with costs.