Case Name: Edward S. Stokes, Respondent, v. Grahams Polley, Appellant
Court: New York Court of Appeals
Jurisdiction: New York
Decision Date: 1900-10-02
Citations: 164 N.Y. 266
Docket Number: 
Parties: Edward S. Stokes, Respondent, v. Grahams Polley, Appellant.
Judges: 
Reporter: New York Reports
Volume: 164
Pages: 266–281

Head Matter:
Edward S. Stokes, Respondent, v. Grahams Polley, Appellant.
1. Evidence—When Admissible although not Pleaded. Where promissory notes are executed by the maker pursuant to the terms of a written agreement for the sale of stock of a corporation, which was the consideration for the notes, and which agreement bound him to deliver them to the payee, and the former delivers them to a third person, and the defense in an action for damages for non-delivery of two of the notes is that the delivery to the third person was by plaintiff’s direction, and defendant has testified to such direction, although not pleaded, evidence is admissible of a parol agreement between the plaintiff and such-third person that the latter should receive the notes in suit as indemnity for an undertaking by him and another as sureties for plaintiff and also to show the extent of that liability and how plaintiff’s sale of the stock without some resulting indemnity would increase the risk assumed by the sureties, since it is a circumstance corroborative of the evidence supporting the real defense.
3. When Parol Evidence not an Attempt to Vary Writing. Where the written agreement provided that certain of the notes covered thereby should be deposited by the plaintiff with a trust company to indemnify the third person and others as sureties upon an undertaking in plaintiff’s behalf, but left him in full control of the remaining notes, including those in suit, and they are delivered to such third person, evidence of such parol agreement is not an attempt to vary the written agreement by parol evidence.
3. Facts Insufficient to Take Case fbom Juby. Where the notes were delivered to such third person under the claim that the delivery was by plaintiff’s direction, the facts that an alteration made in them as a correction was made without plaintiff’s consent and for that reason they were returned to the defendant who replaced them by new notes correctly drawn, and that after the first delivery and before such replacement the alleged authority for delivery to the third person was revoked by the plaintiff, are not sufficient to justify the court in taking from the jury the issue of fact whether the original delivery was by plaintiff’s authority and before the notice of its revocation.
Stokes v. Polley, 30 App. Div. 550, reversed.
(Argued June 22, 1900;
decided October 2, 1900.)
Appeal from a judgment of the Appellate Division of the Supreme Court in the first judicial department, entered June 20, 1898, affirming a judgment in favor of plaintiff entered upon a verdict directed by the court, and an order denying a motion for a new trial.
The nature of the action and the facts, so far as material, are stated in the opinion.
I) mid Me Cintre for appellant.
It was error to hold that a revocation of the agency was effected by the substitution of, two new notes for those which were destroyed. (People v. N. R. S. R. Co., 121 N. Y. 617; 1 Am. & Eng. Ency. of Law, 1218; Hunt v. Rousmanier, 8 Wheat. 174.) It was error to deny the defendant’s motions to go to the jury and for a new trial, and to direct a verdict for the plaintiff. (Cagger v. Lansing, 64 N. Y. 427; Corning v. T. I. & N. Factory, 44 N. Y. 594; Gildersleeve v. Landon, 73 N. Y. 609; Kavanagh v. Wilson, 70 N. Y. 179; Munoz v. Wilson, 111 N. Y. 300; Dean v. M. E. R. Co., 119 N. Y. 550.)
Charles E. Hughes for respondent.
The court properly excluded evidence of the pretended agreement with James D. Leary. (Hunt v. Rousmanier, 8 Wheat. 205; 1 Am. & Eng. Ency. of Law, 1217, 1218; Abb. Tr. Br. 753, § 954; Smith v. Hall, 67 N. Y. 48; Saunders v. Chamberlain, 13 Hun, 570; Russell v. Clapp, 7 Barb. 482; Jackson v. Whedon, 1 E. D. Smith, 141; Spooner v. D., L. & W. R. R. Co., 115 N. Y. 30; Thomas v. Soutt, 127 N. Y. 133; Eighmie v. Taylor, 98 N. Y. 288; Marsh v. McNair, 99 N. Y. 174; Mott v. Richtmyer, 57 N. Y. 49.) The court properly directed a verdict for the plaintiff. (Blade v. Noland, 12 Wend. 173; Arrison v. Harmstaed, 2 Penn. St. 191; Taylor on Ev. § 116.)

Opinion:
Landon, J.
The defendant excepted to the denial of his request to go to the jury, and to the direction of a verdict for the plaintiff; also to the exclusion of evidence offered by him. The questions of law thus presented are before us for review.
The controversy is over two notes of $15,000 each which the defendant agreed to deliver to the plaintiff, but which he in fact delivered to James D. Leary, and the main issue upon the trial was whether the plaintiff had authorized and directed such delivery, or, if he had done so, whether he recalled or countermanded the direction before the defendant actually delivered the notes to Leary.
The written agreement between the plaintiff and the defendant, to which James D. Leary, Daniel J. Leary and It. T. McDonald were also parties, required the defendant to pay to tjie plaintiff $25,000 in cash, and the further sum of $115,000 in seven notes to be made by the defendant and guaranteed by the Learys and McDonald upon plaintiff's delivery to the defendant of 1,300 shares of the capital stock of the Hoffman House. This agreement was made and bore date September 27, 1897. The plaintiff delivered the shares of stock to the defendant September 28, 1897.
The complaint alleges that the plaintiff had then already received the $25,000 from the defendant, but that the defendant had not made or delivered any of the notes to the plaintiff, but. did thereafter deliver to him, first, one note for $30,000, and next, the four other notes aggregating $55,000, but failed and refused to deliver to him the two notes, one at six months and one at eight months, each for $15,000, and hence the plaintiff asks judgment for $30,000 and interest.
The defendant's answer is that "it was understood and agreed at or about the time when the shares of stock were delivered as set forth in the complaint, that all the notes referred to therein should be delivered to James D. Leary, referred to in said complaint as the representative and agent of the plaintiff, and the defendant was directed to and did deliver them to said Leary by the authority and direction and with the knowledge of the plaintiff; " and also alleges that "said delivery was made to the plaintiff through his representative and agent, James D. Leary, who received them from the defendant by the direction and authority of the plaintiff."
The written contract and the seven notes were prepared at the Hoffman House on the 25th of September, 1897, at a meeting of all the parties to the contract except the defendant, who was not present. The parties, except the defendant, then signed the contract, and the two Learys and McDonald indorsed the notes. The Learys retained the possession of the notes and contract, and on September 27th presented the contract to the defendant and he then signed it.
The 1,300 shares, of stock, the subject of the sale, were then held by the Chemical Bank as collateral to a loan of $30,000 made by the bank to the plaintiff. On the next day the bank delivered the stock to the plaintiff upon Mr. J. D. Leary's promise to replace it with the $30,000 note, one of the seven - notes mentioned in the written contract. The plaintiff then delivered the stock to the defendant on Mr. J. D. Leary's promise to plaintiff to procure the notes. The notes were not signed that day because they were in the custody of David J. Leary, who was not present, • but the note for $30,000 was signed by the defendant the next morning, September 29th, at the Hoffman House. The defendant testified that he received it from James D. Leary, signed it, then handed it to Mr. Leary, who handed it to the plaintiff. The defendant further testified that the plaintiff then and there told him to give the balance of the notes to Mr. Leary, and that the plaintiff also told him at the Chemical Bank to give the balance of the notes to Mr. Leary when they were signed, and that the plaintiff there told Mr. Leary to keep the notes. The plaintiff did not contradict this testimony, and it was corroborated by other witnesses. The four notes, aggregating $55,000, were subsequently signed and deposited with the Knickerbocker Trust Compahy.
The defendant offered evidence tending to prove an agreement between the plaintiff and Leary by which Leary was to receive these two notes from the defendant and hold them as indemnity against his and D. J. Leary's liability as sureties for the plaintiff as receiver of the Hoffman House corporation and also as sureties in an action against the corporation itself, and also to show the extent of that liability and how the plaintiff's sale of this stock without some resulting indemnity would increa.se the risk assumed by the Learys. The evidence was excluded.
The Appellate Division sustained the exclusion because such a defense was not pleaded and because it was an attempt to vary by parol a written instrument under seal.
I do not think either ground tenable. If such an agreement existed it would account for the direction alleged by the defendant to have been given by the plaintiff to him to deliver the notes to Mr. Leary and thus add' credibility to the defendant's testimony that the plaintiff did give him such a direction. If the plaintiff and Leary had made such an agreement, then the plaintiff's direction to the defendant was an obvious consequence of it.
The court, in excluding evidence of the agreement between Stokes and Leary by which Leary was to receive the two notes, excluded the evidence tending to prove the agency of Leary to receive them, as between Leary and the plaintiff. Clearly the defendant would make a stronger case if, in addition to proving the agency as between plaintiff and himself, he should prove it as between the plaintiff and Leary. It was not necessary to plead the plaintiff's separate agreement with Leary, since it was not a defense, but it was a circumstance corroborative of the evidence which supported the real defense, namely, that defendant delivered the notes to Mr. Leary as the plaintiff told him to do. It was not necessary to plead the corroborative evidence.
The argument to support • a variance of the written agreement by the parol evidence will not bear scrutiny. It is true that the written agreement provides that the plaintiff shall deposit $55,000 of the notes with the Knickerbocker Trust Company to indemnify the two Learys and McDonald against their liability as sureties upon the plaintiff's appeal bond in an action then pending upon appeal against him, but this agreement is in consideration of their guaranteeing all the notes — seven of them — aggregating $115,000. No doubt this guaranty was important, and it was also important to be able to show that it was made upon sufficient consideration, and, therefore, it was proper to insert it in the agreement. This written agreement left the plaintiff free to dispose of the other notes and of the cash part of the consideration of his sale of stock to whom he pleased and in any way he pleased, and if, before the written agreement or after it, he provided for such disposition, he simply provided for dealing with his own after it should become such ; that is to say, he appointed Leary to receive the notes and notified the defendant, thus making defendant's delivery to Leary delivery to himself. Such provision for appointment and disposition is not at variance with the written agreement, but is in furtherance of it.
Another phase of the case needs consideration. If we credit the defendant's evidence, after the plaintiff had directed the defendant to deliver the notes to Leary, and the defendant had done so, the plaintiff changed his position, and demanded the notes of the defendant. The notes were drawn to the order of the plaintiff but not indorsed by him, nor did they bear interest. While in Leary's- hands the two notes were altered without the plaintiff's consent, by substituting the word "bearer" for "order," and by adding the words "with interest." Hr. Leary apparently becoming apprehensive that this alteration was unauthorized, requested the defendant to give him new notes, and handed him the original notes. The defendant destroyed the notes and gave Hr. Leary new notes in their stead. This was after the plaintiff had demanded the original notes of defendant.
The trial court held that as the defendant thus had the original notes in his possession after the plaintiff had signified his revocation of whatever direction the plaintiff had previously given him to deliver the same to Hr. Leary, it was the defendant's duty to deliver them to the plaintiff instead of destroying them. However this might be if no interest in the notes had accrued to Leary by virtue of some contract between him and the plaintiff, under which he held possession of them in aid of such interest, yet if Leary had acquired some interest in the notes with the right to their possession in protection of his interest, then the defendant had no right upon the mere receipt of the notes for the purpose of repairing a wrong or mistake, to violate or confiscate Leary's interest in and right to the possession of the notes. Such an act would be a breach of trust, of good faith and of defendant's duty as temporary bailee of [the notes for a special purpose. If Leary's claim was not well founded, it may be gravely doubted whether it was defendant's duty to take advantage — apparently dishonorable — of such a circumstance to advance the plaintiff's title to the notes. If Leary's claim to the notes was well founded, the defendant did the plaintiff no legal wrong. If well founded, then the plaintiff should have been permitted to show that he did .the defendant no wrong by showing that as between Leary 'and the plaintiff, Leary was entitled to the notes. As the quality of the defendant's act in destroying the original notes depended upon the rights of the plaintiff and Leary as between each other, the defendant was prejudiced when he was not permitted to show such rights.
The trial court assumed, as a matter of law, that since the original notes bore no interest, the notes thus made should not be considered as in performance of the contract. This view and the substitution by defendant of new notes at the request of Leary seem to have led to the exclusion of much of the evidence offered by the defendant, and to the refusal to submit the case to the jury. That the $115,000 to be evidenced by the notes should bear interest is clear from the written agreement, but the agreement is not explicit that the notes should express it. Indeed, when the plaintiff received the note for $30,000 the absence of the words " with interest " was remarked at the bank where the plaintiff substituted it as collateral in place of the stock he sold to the defendant, and the defendant thereupon gave' to the plaintiff his check for the interest.
The complaint assumes that these two original notes were proper in form and were such as the contract specified. The plaintiff's cause of action is founded upon their non-delivery to himself in person, not upon any defect in the notes themselves. The amount they represented bore interest under the the contract, and it does not appear to be important whether the notes expressed interest or not; the complaint alleges that they did ; they were prepared by the plaintiff for execution by the defendant, and the inference is strong that they were satisfactory to the plaintiff. If there was any question whether the two notes were such as the contract called for under the plaintiff's practical construction of it, upon which the defendant acted, it was a question of fact for the jury, and not of law for the court.
We think the court erred in excluding the evidence.alluded to and in not submitting the question to the jury upon the evidence given, whether the defendant delivered the notes to Leary pursuant to plaintiff's direction and before notice of its countermand.
The judgment should be reversed, new trial granted, costs to abide the event.