Case ID: ny-super-ct_43/html/0411-01.html
Source: Caselaw Access Project
Author: {"author": "By the Court.—Freedman, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

HENRI HENNEQUIN and others, Plaintiffs and Appellants, v. FRED BUTTERFIELD and others, impleaded with HENRY CLEWS and others, Defendants and Respondents.
    I. Equity Action.
    1. JURY TRIAL, RIGHT TO, OF CERTAIN ISSUES JOINED IN. (a) Whefe the allegations contained in the complaint make out an action in equity for equitable relief, and certain of the allegations make out as to some of the defendants an action at law for legal relief, the issues of fact joined as to the allegations making out the equitable cause of action are to be tried and disposed of at a special term by the court without a jury; and if the equitable cause of action fails, and so leaves the issues joined on the allegations making out an action at law as to some of the defendants to í>e disposed of, those issues should be tried by a jury.
    1. This although the complaint is as to the legal cause of action in form an action in equity, and the relief prayed in respect thereto is in form equitable relief.
    
      2. This although upon the trial of the cause as an equity action, the defendants as to whom a cause of action at law is made by certain of the allegations in the complaint, as to which issue is joined, did not demand those issues to he fried hy a jury.
    
    (5) Application op bule.
    1. In this action, the judge at special term, having upon the proofs dismissed the complaint as to those defendants as to whom the allegation of the complaint made out a cause of action in equity, found as a conclusion of law, that as to the defendants with respect to whom certain of the allegations (upon which issue was joined), made out an action at law, the issues should be tried by jury. Upon the findings, judgment was entered dismissing the complaint as to the first set of defendants, and ordering that the judgment should be without prejudice to the right of plaintiffs to a trial by jury of the issues raised by the latter set of defendants,
    
      Held,
    
    
      Correct.
    
    H. Pleadings, Evidence under.
    1. BONA FIDES OF HOLDING NEGOTIABLE PAPER OR INSTRUMENTS.
    («) Not necessary to he pleaded to admit evidence of, when.
    
    1. Where the complaint alleges a fraudulent hypothecation of the instrument by some of the defendants to a copartnership consisting of other of the defendants, for money theretofore loaned by said copartnership to the former defendants, and also alleges that if such copartnership bought the instrument, or advanced thereon any moneys in good faith and without notice of plaintiffs’ ownership, yet it had sufficient other property held by it as collateral security to pay their claims and demands; and prays that the said copartnership deliver the instruments to the plaintiffs with all damages sustained by the conversion thereof, or if they shall have advanced any moneys thereon in good faith and without notice, then that they be allowed the amount thereof; and if they shall hold the securities in good faith, then that they account for the property held by them and received from the former defendants, and after-deducting their claims and demands, pay to plaintiffs the surplus or so much as might be necessary to satisfy plaintiffs’ claims, demands and damages against the former-defendants.
    
      
      Decided February 4, 1878.
    HELD
    
      under denials of the above stated allegations in the complaint, evidence to show the transaction referred to was not with the copartnership, but with one of its members individually, and that he was in foot a bona fide holder for value without notice, was admissible.
    
    III. Partnerships.
    1. FICTITIOUS NAME.
    (a) Statute against using.
    
    1. Laws of 1833, ch. 281, must be construed in connection with ch.
    400, Laws of 1854, and ch. 144, Laws of 1863.
    
      (a) Case not brought within the statute.
    
      Semble, A. lent the use of his name to a firm composed of B. and C., and the firm thereafter carried on business in the firm name of A. & Co. until 1866, when the business ceased, and the proceeds of the assets thereof belonging to B., passed into the hands of A. for management. A separate account, under the title of “A. & Co. of 1866,” was kept of those proceeds, to distinguish them from the assets of a firm of “A. & Co.” subsequently formed. It seems that a transaction had witliD. under the title of “A. & Co. of 1866,” whereby B.’s money was loaned to D., the check to D. being signed “A. & Co. of 1866,” B. being then deceased, does not fall within the prohibition of the statute, there being no proof that the provisions of the enabling statutes under which the use of a copartnership name may be continued, had not been complied with.
    2. INVOKING BENEFIT OF STATUTE.
    
      (d) WHAT NECESSARY.
    1. By plaintiff, the action must be based on the statute.
    2. By defendant, the defense must be based on the statute.
    Before Curtis, Ch. J., and Freedman, J.
    The substance of the complaint in this action is; that plaintiffs deposited with Henry Clews & Co. certain securities in trust and for the purpose of securing said Henry Clews & Co., in the event of plaintiffs failing to remit to the firm of Clews, Habicht & Co., of London, the requisite funds to pay certain bills of exchange to the extent of £6,000, which Henry Clews & Co. authorized the plaintiffs to draw on Clews, Habicht & Co., of London, to provide for which Henry Clews & Co., at plaintiffs’ request, opened a credit with the banking-house of Clews, Habicht & Co., of London, for £6,000 ; that plaintiffs took up and paid, or furnished Henry Clews & Co. with the funds wherewith to pay, all the bills of exchange drawn by them on Clews, Habicht & Co., of London, and demanded of Clews & Co., the said securities, which demand was complied with except as to certain bonds, the subject of this action ; that defendants, Henry Clews and Theodore S. Fowler, ° composing the firm of Henry Clews & Co., fraudulently hypothecated with the defendants, composing the firm of Fred Butterfield & Co., the said bonds for money theretofore loaned and advanced by said Fred Butterfield & Co., and said bonds are still in the possession of said Fred. Butterfield & Co. ; that Henry Clews & Co. borrowed from Fred. Butterfield & Co. about half a million of dollars, and hypothecated with them, as security therefor, property of the value of about a million of dollars ; that if said Butterfield & Co. either bought said bonds or advanced any money thereon in good faith, and without notice of their belonging to plaintiffs, yet they have sufficient other property in their hands from which they will realize enough to pay their own claims and demands against Henry Clews & Co., without having recourse to said bonds ; that Frederick S. Taylor, as assignee of Henry Clews and Theodore S. Fowler, claim some interest in said bonds. The prayer of the complaint was as follows:
    “ 1st. That the defendants, Henry Clews & Co. and Fred. Butterfield & Co., deliver to these plaintiffs the said twenty-nine first mortgage bonds of $1,000 each, of the Toledo, Peoria and Warsaw Railroad Company, Eastern Division, with the interest received thereon, together with all damages sustained by these plaintiffs for the conversion thereof.
    ‘ ‘ %nd. That if the said defendants, Fred. Butter-field & Co., shall have advanced any moneys on said bonds in good faith and without notice, then that said defendant, Fred. Butterfield, be allowed the amount so advanced thereon.
    
      “3rd. That if the said defendants, Fred. Butter-field & Co., shall hold and own said twenty-nine bonds in good faith, then that they account to the plaintiffs for the property and securities held by them and received from said defendants, Henry Clews & Co., and ■ after the said defendants, Fred. Butterfield & Co., shall have been paid therefrom their said claims and demands against said defendants, Henry Clews & Co., that they pay the surplus or so much thereof as shall be necessary to satisfy the plaintiffs’ claims, demands and damages against said defendants, Henry Clews & Co.
    “ 4ill. That the plaintiffs have judgment against the defendants, Henry Clews & Co., for all damages that said plaintiffs have sustained by reason of the unlawful conversion of said bonds.
    
      ‘5ill. That an injunction issue, restraining the defendants from parting with or disposing of said twenty-nine bonds; that a receiver be appointed, and that the plaintiffs have such other and further relief as to the court shall deem meet.”
    The answer of Henry Clews and Theodore S. Fowler, among other things, denied that they fraudulently hypothecated said bonds, and alleged that they were hypothecated for the purpose, among other things, of carrying out the letter of credit, and the arrangements between plaintiffs and themselves.
    The answer of the other deféndants, among other things, denies the alleged fraudulent hypothecation, denies that Fred. Butterfield & Co. have sufficient property, other than said bonds, in their hands, from which they will realize enough to pay their own claims and demands against said Henry Clews & Co., without having recourse to said bonds, and denies that defendant, Taylor, claims some interest in said bonds. The answer contained no affirmative allegations to the effect that these defendants were bona fide holders for value without notice.
    The action was tried at special term as an equity suit. The learned judge before whom the cause was tried found as conclusions of law :
    “ 1st. That said bonds in suit are negotiable instruments, the title to which passes by delivery.
    
      “2nd. That the estate of Wm. Butterfield, or his personal representatives, are the holders, in good faith, of said bonds in suit, and entitled to retain the same.
    
      “3rd. That said Frederick Taylor has no interest in said bonds, either individually or as a member of the firm of Fred. Butterfield & Co., or as assignee of said Henry Clews & Co.
    
      “4th. That the defendants, Frederick Butterfield, Frank H. Ini oes, Edward A. Price, Frederick Taylor, and Peter B. Worrall, are entitled to judgment dismissing the complaint as against, them, with costs, and two hundred and fifty dollars allowance.
    “ 5fh. That as to the defendants, Henry Clews and Theodore S. Fowler, the issues in this action should be tried by jury.”
    Upon this finding, judgment was entered dismissing the complaint as against Fred. Butterfield, and others, constituting the firm of Fred. Butterfield & Co., and as against Frederick Taylor, as assignee of Henry Clews & Co., but without prejudice to the plaintiffs’ right to a trial by jury of the issues raised by the answer of the defendants constituting the firm of Henry Clews & Co.
    
      Plaintiffs appeal from the judgment and each and every part thereof.
    
      C. Bainbridge Smith, attorney, and of counsel for appellants, upon the legal questions considered in the general term opinion, urged :
    —I. There was a mis trial. The action was purely of an equitable character, and the court had no authority to dismiss the complaint as to some of the parties, and direct another branch of it as a matter of law to be tried by a jury (1 Story’s Eq. Jur. § 703, and cases cited; Bay v. Coddington, 5 Johns. Ch. 54; Lloyd v. Gordon, 2 Swanst. 180; Patrick v. Harrison, 3 Brown Ch. 476; Jackson v. Butler, 9 Mod. 297; S. C., 3 Atk. 306; Osborne v. U. S. Bank, 9 Wheat. 738; Hamilton v. Cummings, 1 Johns. Ch. 517; Kobbi v. Underhill, 3 Sandf. Ch. 277; Hasbrouck v. Vandervoort, 4 Sandf. 74; State of Illinois v. Delafield, 8 Paige, 527; 2 Story Eq. Jur. § 1032; Eden on Inj. 210; Brinkley v. Brinkley, 56 N. Y. 192; 1 Story’s Eq. Jur. § 71; 2 Id., § 1, 483; Code of Pro. § 387). (1.) The extension of the jurisdiction of courts of law to cases which formerly were subjects of equitable jurisdiction exclusively has not ousted the jurisdiction of courts of equity (White v. Meday, 2 Edw. 486, and cases cited ; Sailly v. Elmore, 2 Paige, 497; Mayne v. Griswold, 3 Sandf. 464; American Ins. Co. v. Fisk, 1 Paige, 90; McLaren v. Pennington, Id. 102). Where equity obtains jurisdiction of a cause for any purpose it will retain it until justice is effected (1 Story Eq. § 74; Id. (11 Ed.) § 64, k; De Bemer v. Drew, 39 How. Pr. 466; Le Roy v. Veeder, 1 John. Ca. 417; Rathbone v. Warren, 10 Johns. 587, 596 ; King v. Baldwin, 17 Id. 384).
    II. The defendant Fred. Butterfield, and the other defendants, composing that firm, did not allege in their answers that they had received the bonds in question in good faith, without notice and for valuable consideration (1.) Before the Code of Procedure this was requisite (Wallyn v. Lee, 9 Ves. 24, 33, 35 notes; Gallatin v. Cunningham, 8 Cow. 361; Frost v. Beekman, 1 Johns. Ch. 288; Balcolm v. N. Y. Life Ins. Co., 11 Paige, 454-456). (2.) The rule under the code is as of old; in order to admit testimony that a party is a bona fide holder for a valuable consideration, it is necessary that the answer should contain allegations to that effect (Weaver v. Barden, 49 N. Y. 286-9; Field v. The Mayor, 8 Id. 179). Therefore the court erred in allowing the defendants to prove that they were bona fide holders of the plaintiffs’ bonds for value, and the ^exception thereto is well taken.
    III. Frederick Butterfield carried on and transacted "business under the firm name of ‘ ‘ Fred. Butterfield & Co. of 1866.” This was a fictitious name, and having obtained possession of the plaintiffs’ bonds in violation of the statute of the State of New York he cannot hold them as against the plaintiffs (Laws, 1833, Ch. 281; see 4 General Stat. [Edm. ed.], 449). (1.) This act of the defendant, Fred. Butterfield, was within the plain provisions of the statute prohibiting such a trans.action and upon principle and authority renders it void (Griffith v. Wells, 3 Denio, 226; Swords v. Owen, 2 J. & S. 277; S. C., 43 How. Pr. 176; Pennington v. Townsend, 7 Wend. 276; 1 Story Eq. Jur. 296). (2.) If Frederick Butterfield could not recover the purchase money on a sale of the bonds, can he hold them against the owners when it appears he obtained them by and through the same illegal means ? Is it not a fundamental principle of law that no right can be derived from any contract made in express opposition to the laws where such contract is made % (Duncan v. McLure, 4 Dall. 308; Hall v. Mullin, 5 Har. & J. 693; Clark v. Shee, 1 Cowp. 197; Swords v. Owens, 43 How. Pr. 176; Ramsdell v. Morgan, 16 Wend. 517; Dean v. Howes, Hill & Denio, 37; Keutgen v. Parks, 2 
      Sandf. 60. See also Dix v. Van Wyck, 2 Hill, 522; Griggs v. Howe, 2 Keyes, 166; Armstrong v. Lewis, 3 M. & K. 45; Woodworth v. Bennett, 43 N. Y. 273; Tregoning v. Jenner, 7 Bing. 97; S. C., 20 E. C. L. R. 60).
    
      Boardman & Boardman, attorneys, and Andrew Boardman, of counsel, for respondents, urged :
    —I. A consideration of the pleadings deprives of all force the objections to testimony introduced on behalf of the defendant Butterfield, based upon the ground that it was not pleaded in the answer, viz.: the objection to the proof of the honafides of the loan and pledge of securities, and also of Butterfield’s not being himself interested either in the loan as security for which the' bonds in suit were pledged, or in the bonds themselves.. There was no necessity of pleading such matter in behalf of the firm of Fred. Butterfield & Co., and the complaint contained no allegations against Butterfield, except in his capacity as a member of that firm. They made no attempt to amend their complaint so as to notify Butterfield that they would, upon the trial, attempt to fasten upon him an individual liability, nor did they bring in as parties the persons really interested in the bonds. They chose to go to trial upon the complaint in its original form, and, having introduced evidence tending to show an individual liability on the part of Butterfield, attempted to shut out testimony on his behalf, on the ground that his answer did not properly plead matter of defense to a claim of which no mention is made in the complaint. Such testimony was properly admitted over the objection that it was not pleaded, which was the only objection taken.
    II. The only ground upon which the special term took, or could take, jurisdiction of the present suit, as containing any equitable cause of action, was the claim set up in the complaint that the plaintiffs were entitled to an accounting and a marshaling of the securities held as collateral by Fred. Butterfield & Co., and to the release of the bonds in suit from the lien of their loan, on the ground that they held sufficient other collateral security for its payment without having recourse to these bonds. The evidence shows that the securities held as collateral would not realize sufficient to pay the loans for which they were pledged. This testimony is uncontradicted. Upon the proof of this fact, there disappeared from the case the only element entitling the plaintiffs to the interference of a court of equity.
    III. The plaintiffs claim that the loan of $690,000 was, on account of the use of the term “Fred. Butterfield & Co. of 1866,” in contravention of the statute of April 29, 1833, prohibiting the use of fictitious names in business. This statute must be construed in connection with chapter 400 of the Laws of 1854 (Session laws of that year, page 1084), and chapter 144 of the Laws of 1863 (Session laws of that year, page 227), which are in pari materia, and which provide that the use of a copartnership name may be continued upon complying with their provisions as to filing a certificate and publishing an advertisement to that effect. The object of these statutes was to prevent persons from obtaining credit on the responsibility of supposed names included in the term “Co.,” but here Fred. Butterfield represented an actual responsible name as to all the world except his partners, and “ Co.” represented two names—William Butterfield and L. A. Jacobus. Fred. Butterfield was a partner liable for all the debts of the firm, and it was only as between himself and the two persons included in the term “Co.” that his liability was limited. The statute in question cannot avail the plaintiffs. For (1.) no case can be found in which a party has been allowed to take advantage of the statute, unless it was specially pleaded (O'Toole v. Garvin, 1 Hun, 92, and cases there cited). (2.) The court will not deprive the personal representatives of William Butterfield of their property by its judgment in an action to which they are not made parties, and have not had an opportunity to be heard. (3.) The transaction was not within either the spirit or the letter of the law, even if it be conceded that the making of the loan was “transacting business” within the meaning of those terms as used in the statute. The law was intended to prevent persons obtaining credit to which they were not entitled. In the present case credit was given to Clews & Co. The term was used in the liquidation of the affairs of a firm which had ceased doing business, and with the addition of the words “ of 1866,” employed simply as an ear-mark to keep the proceeds of the property of that firm entirely separate from other funds. (4.) There is no proof that the provisions of the enabling statute of 1854 have not been complied with. In the absence of such proof, the court will not presume that a party committed a misdemeanor (Hartwell v. Root, 19 Johns. 345; People v. Pease, 27 N. Y. 45; Farmer’s Loan Co. v. Curtis, 3 Seld. 470).
    IY. Finally, should it be held, not only that the statute applies, and that the plaintiffs can take advantage of it, but also that no subrogation takes place, still the judgment of the court below should be affirmed, as the plaintiff’s remedy at law, by an action of replevin, was perfect against the parties holding the bonds ; and with such a controversy the special term, or, in other words, the equity side of the court, had nothing to do, the defendants being entitled to a trial by jury (People v. Albany R. R. Co., 57 N. Y. 161; Hudson v. Caryl, 44 Id. 553; Bradley v. Aldrich, 40 
      Id. [1 Handd] 504; Mann v. Fairchild, 2 Keyes, 111; Heyward v. City of Buffalo, 14 N. Y. 534).
   By the Court.—Freedman, J.

—As to the defendant Taylor, it was found below, as a conclusion of law, that he has no interest in the bonds in controversy, either individually or as a member of the firm of Fred. Butterfield & Co., or as assignee of Henry Clews & Co. This finding was not excepted to, nor does the record contain any exception whatever under which the dismissal of the complaint as against him as assignee of Henry Clews & Co. could be reviewed.

As against the defendants constituting the firm of Fred. Butterfield & Co. the action proceeded on the theory that they, as against the plaintiffs, were not bona fide holders of the bonds in question for value, or, if they were, that the plaintiffs were entitled to an accounting and a marshaling of the securities held by Fred. Butterfield & Co. as collaterals, and to the release of the bonds in suit from the lien of their loan to Henry Clews & Co., on the ground that they held sufficient other collateral security for the payment of the loan without having recourse to these bonds. If the evidence given upon the trial failed to establish this theory, but a single issue remained to be tried between the plaintiffs and Henry Clews & Co., and that related solely to the alleged conversion of the bonds. For the purpose of trying that issue, the last named defendan ts had a right to demand a jury (Sternberger v. McGovern, 56 N. Y. 12; Hudson v. Caryl, 44 Id. 553; Kinne v. Kinne, 2 Sup'm Ct. [T. & C.] 393).

The bonds in suit were negotiable instruments, and as holders in good faith and for value Fred. Butterfield & Co. could, if necessary for their protection, retain them as against the plaintiffs. Under the issues raised by the pleadings they had a right to show that they were such bona fide holders for value, and the evidence given by them clearly established and fully justified the learned judge below in finding, as he did, not only that they had parted with full value upon the faith of the bonds and without notice of plaintiffs’ rights in the premises, but also that in making the loan or loans to Henry Clews & Co. they had acted as agents only for others. Moreover, the plaintiffs not only failed to show that Fred. Butterfield & Co. held sufficient other col-laterals, but the latter proved by testimony which remained uncontradicted, that all the securities held as collaterals would not realize sufficient to pay the loan for which they stood pledged.

It is insisted, however, that inasmuch as Frederick Butterfield made the loan in question under the firm name of “Fred. Butterfield & Co. of 1866,” and at a time at which no such firm existed, he obtained possession of plaintiffs’ bonds in violation of the statute of the State of New York forbidding persons to transact business under fictitious names (L. 1833, ch. 281), and that for this reason, if no other, the complaint was improperly dismissed as against him. The statute referred to, provides that no person shall transact business in the name of a partner not interested in his firm, and where the designation “and company” or “& Co.” is used, it shall represent an actual partner or partners. It further provides that any person offending against its provisions shall, upon conviction, be deemed guilty of a misdemeanor, and be punished by a fine not exceeding one thousand dollars.

Upon this branch of the case the facts appear to be as follows:' „

About August?, 1873, Frederick Butterfield, as agent of the estate of Sarah Hannah Butterfield, and out of the moneys in his hands belonging to said estate, and on securities including the twenty-nine bonds in suit, loaned to Henry Clews & Co. the sum of $112,939.69.

About September 4, 1874, Frederick Butterfield, as agent of the estate of William Butterfield, and out of moneys then in his hands belonging to said estate, loaned to Henry Clews & Co. the sum of $690,000. Out of the sum so obtained Henry Clews & Co. repaid the loan had from the estate of Sarah Hannah Butter-field, and at the same time they transferred the securities held by Frederick Butterfield as agent of the estate of Sarah Hannah Butterfield to him, as agent of the estate of said William Butterfield, as security for said loan of $690,000.

Prior to 1866, William Butterfield and one Lyman A. Jacobus had carried on business in the cities of London and Hew York under the firm name of “Fred. Butterfield & Co.,” and to this business Frederick Butterfield had given the use of his name. The business ceased in 1866, and the said sum of $690,000 formed part of the proceeds of the assets thereof which belonged to said William Butterfield, and as such it passed into the hands of Fred. Butterfield for management. In order to distinguish the proceeds of the said assets from the assets of the firm of Fred. Butterfield & Co. as subsequently formed, they were kept in a separate account under the title of “Fred. Butterfield & Co. of 1866.” The transaction with Henry Clews & Co., as above stated, was made under that title in September, 1874, and by a check signed “ Fred. Butterfield & Co. of 1866,” though William Butterfield had died during the preceding month of June.

Upon this state of facts, it is clear that prior to and in 1866 the name of Fred. Butterfield represented an actual party responsible to all the world, except his partners, for the use of his name, and the term “ & Co.” represented two other parties, William Butter-field and L. A. Jacobus, who were partners in fact. By this arrangement Frederick Butterfield became liable for all the debts of the firm bearing his name, and ifc was only as between himself and the two persons included in the term “& Co.,” that his liability ■ was limited.

Under these circumstances it may be a question whether the statute applies. This statute must be construed in connection with chapter 400 of the Laws of 1854, and chapter 144 of the Laws of 1863, which are in pari materia, and which provide that the use of a copartnership name may be continued upon compliance with their provisions as to filing a certificate and publishing an advertisement to that effect, and there is no proof that the provisions of these enabling statutes have not been complied with.

But another, and fatal objection is, that Frederick Butterfield was not declared or proceeded against under the statute referred to. The alleged violation of the statute, if any there was, not having been made the basis of the action, and the fact being that he acted as agent only for principals not before the court, the law will- not deprive these principals of their property by means of a judgment to be rendered in an action to which they were not made parties, and in which they have had no opportunity to be heard. If the plaintiffs intended to rely upon the statute, they should have pleaded its violation (O’Toole v. Garvin, 1 Hun, 92).

The case also contains exceptions to the admission óf testimony, to the findings as made, and the refusal of the court to find as requested by the plaintiffs, but under the views, above expressed they are clearly untenable.

The judgment, should be affirmed with costs.

Curtis, Oh. J., concurred.