Case Name: CARPENTER et al. v. HOADLEY
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1910-05-13
Citations: 123 N.Y.S. 61
Docket Number: 
Parties: CARPENTER et al. v. HOADLEY.
Judges: 
Reporter: West's New York Supplement
Volume: 123
Pages: 61–71

Head Matter:
(138 App. Div. 190.)
CARPENTER et al. v. HOADLEY.
(Supreme Court, Appellate Division, First Department.
May 13, 1910!)
1. Bills and Notes (§ 359 )—Bona Fide Holder for Value.
Plaintiffs were not the bona fide holders for value of a note made by I\l. to his own order and indorsed by defendant, so as to deprive defendant of a defense otherwise available; they having parted with nothing in consideration thereof, but having held a claim for an antecedent debt either against defendant, which he denied, or against M., which they did not release on receiving the note from M.
[Ed. Note.—For other cases, see Bills and Notes, Cent. Dig. §§ 92L-936; Dec. Dig. § 359.*]
2. Bills and Notes (§ 64 )—Conditional Delivery.
Plaintiffs holding a claim against M. or defendant, defendant, though denying liability, proposed to, and did, intrust to M. the selling of stock owned by defendant, with authority to M. to pay the claim from the proceeds thereof. He also indorsed notes made by M. to his own order for the amount of the claim and delivered them to M. on the agreement made by M., on behalf of plaintiffs, with him, that M. would keep them in his possession as evidence of M.’s authority to apply, in payment of the notes, money received on sale of the stock; and that the notes would be held and the proceeds of such sales applied on their payment; and that defendant would not be compelled to pay anything on them otherwise than out of the proceeds of such sales. Held, that such conditional delivery was a good defense to an action on the notes.
[Ed. Note.—For other cases, see Bills and Notes, Cent. Dig. § 104; Dec. Dig. § 64.*]
3. Bills and Notes (§ 517*)—Conditional Delivery—Evidence.
Recital in a contract between defendant and M., made some time fitter delivery of notes by defendant to M. and their transfer by M. to plaintiffs, of the condition on which the notes had been delivered, being but a mere recital of what the contract accompanying the delivery was, is but one piece of evidence, in the shape of an admission, not conclusive against defendant’s testimony as to what the condition was.
[Ed. Note.—For other cases, see Bills and Notes, Cent. Dig. §§ 1807-1815; Dec. Dig. § 517.*]
4. Appeal and Error (§ 268*)—Exceptions—Judgment Notwithstanding Verdict.
The judgment for plaintiffs on a verdict directed for them, notwithstanding the special verdict, finding facts not authorizing it, cannot be sustained because of one piece of evidence appearing to bear in plaintiffs’ favor; there being no exception permitting review of the verdict on the facts.
[Ed. Note.—For other cases, see Appeal and Error, Cent. Dig. §§ 1596-1608; Dec. Dig. § 268.*]
Ingraham, P. J., and McLaughlin, J., dissenting.
Appeal from Trial Term, New York County.
Action by Nathaniel L. Carpenter and others against George W. Hoadley, impleaded with another. From a judgment on a general verdict directed for plaintiffs on the special verdict, defendant Hoadley appeals.
Reversed and directed.
Argued-before INGRAHAM, P. J., and CLARICE, SCOTT,-Mc-LAUGHLIN, and DOWLING, JJ.
John H. McCrahon, for appellant.
Edmund L- Mooney, for respondents.
For other cases see same topic & § number in Dec. & Am. Digs. 1907 to date, & Rep’r Indexes
For other cases see same topic & § number in Dec. & Am. Digs. 3907 to date, & Rep’r Indexes

Opinion:
SCOTT, J.
The defendant Hoadley appeals from a judgment entered upon a verdict for the plaintiffs directed by the court. The appellant is sued as indorser upon promissory notes made by the defendant Maloney to his own order, and indorsed by the appellant. The plaintiffs are stockbrokers. Maloney, who, although named as a defendant, has not been served with process, was the manager of their branch office at Boston, Mass. The appellant resided at Providence. Some time in July, 1906, Maloney opened a speculative account for account of appellant, under the wholly fictitious title of "Fred Williams, Special." It is not made clear whether appellant in the first instance authorized the opening of this account; but it is clear that he soon knew of it and received notices concerning it from time to time. He was not required to put up any margin. The account ran along until about August 25, 1906, when it showed a small loss of about $100. Appellant's testimony is that on this date he notified Maloney by telephone to close the account out, and at the same time repudiated any responsibility for it or interest in it. Maloney's story is that he did receive a telephone message from appellant, but his understanding was that he was to continue to trade in the account according to such instructions as he might receive from plaintiffs' New York house. Appellant went off on a journey and appears to have had nothing further to do with the account or knowledge as to what Maloney was doing with it. Maloney did not close it out. Some time during the month of September, there was a sharp and sudden rise in the price of cotton (with which the account dealt), and the account was closed out at a loss of several thousand dollars. Demand was made upon appellant for the amount of the deficit, which he refused to pay, disclaiming any responsibility. Plaintiffs then declared that, unless appellant assumed responsibility, the loss would fall upon Maloney, and that he would be discharged from his position.
' Appellant, in order to relieve Maloney, and still disclaiming any responsibility on his own part, proposed that he should intrust Maloney with the selling of a large amount of mining stock, in which he was interested, and that Maloney might pay the amount of the loss out of the first proceeds of the sale of such stock. He also, at Maloney's solicitation, indorsed the notes in suit. Maloney started in to sell the mining stock, using plaintiffs' letter heads to solicit purchases. Owing to objection on the part of the officers of the New York Stock Exchange, Maloney was directed to discontinue the use of plaintiffs' name in connection with the marketing of the mining stock, but was authorized to undertake to market it in his own name, on condition ' that he turn over to plaintiffs the notes involved in this action, and which he had up to that time retained in his own possession. This was on November 23, 1906, nearly two months after the execution of the notes. The defense is that the notes were- delivered to Maloney upon condition that they were to remain in his possession and control; that they were to be paid solely out of the proceeds .of the sale of the mining stock above mentioned; and that appellant was in no event to be held personally liable for their payment.
This defense, if established, was available to appellant as against the plaintiffs. They were not bona fide holders for value, for they had parted with nothing in consideration of the notes. They held a claim against either the appellant or Maloney—against appellant if he was legally responsible for the account, which he always denied; against Maloney if he had carried on the account in the face of appellant's instructions to close it out, and without plaintiffs' consent. In either case, their claim was for an antecedent debt, which they did -not release upon receiving the notes. The question of appellant's liability upon the account was not litigated. The court submitted to the jury certain specific questions, which, as the record shows, were carefully formulated by agreement between counsel for both parties. The questions and the answers given by the jury were as follows:
"Q. Was it agreed by Maloney with Hoadley, at the time the notes in suit were given, that he (Maloney) would keep the notes in his possession as evidence of Maloney's authority to apply the money received on the sale of the stock of the Cathedral Mining Company in payment of said notes; that the notes would be held and the proceeds of such sales applied to their payment, and Hoadley not be compelled to pay anything on them otherwise than out of the proceeds of such sales? A. Yes.
"Q. If you find that Maloney made such promise or agreement, did he make it on behalf of Carpenter, Baggot & Co., or as his own personal promise or agreement? A. Yes, Carpenter, Baggot & Co."
The special verdict thus found by the jury was not objected to in any way, and no motion was made to set it aside. There was evidence to sustain it, and the findings of fact thus found stand as the undisputed facts of the case. Notwithstanding the special verdict, the court directed a verdict in favor of plaintiffs.
The question which we have to consider is, therefore, whether the facts thus found constitute a defense to the action. The first question submitted to and answered by the jury is substantially identical with that which was submitted in Andrews v. Hess, 20 App. Div. 195, 46 N. Y. Supp. 796, the affirmative answer to which was held to establish a defense. In that case the rule was recognized, which has been stated in one form or another in many cases, that, when the delivery of a note is limited by the conditions upon which the delivery was made, the performance of these conditions is essential to the validity of the notes. In Benton v. Martin, 52 N. Y. 570-574, the rule is thus stated:
"Instruments, not under seal, may be delivered to the one to whom upon their face they are made payable, or who by their terms is entitled to some Interest or benefit under them, upon condition, the observance of which is essential to their validity; and the annexing of such condition to the delivery is not an oral contradiction of the written obligation, though negotiable, as between the parties to it or others having notice. It needs a delivery to maké the obligation operative at all, and the effect of the delivery and the extent of the operation'of the instrument may be limited by the condition with which delivery is made. And so also, as between the original parties and others having notice, the want of consideration may be shown."
To the same effect are many other authorities, in one of which the words quoted above are adopted and reiterated. Higgins v. Ridgway, 153 N. Y. 130, 47 N. E. 32. In Jamestown Business College Ass'n v. Allen, 172 N. Y. 291, 64 N. E. 952, 92 Am. St. Rep. 740, a very different question was presented. In that case the defense relied upon was that the note was to become void upon the happening of a future event. The court pointed out very clearly the distinction between such a case and one like that which we have to consider, saying:
"Had the parties agreed that the note should not be regarded as completely delivered until the defendant should take such instructions, or until she could sell her scholarship, it would not have become operative until either of these events had transpired. The agreement which the parties did make was just the reverse of that. The note is stated to have been actually and unconditionally delivered, and was to be and remain a note until the defendant should decide either to sell the scholarship, if that were possible, or to abandon the projected course of instruction. That was not a conditional delivery which held the consummation of the contract in abeyance, but an absolute delivery which, as the defendant supposed, could be annulled, in a certain contingency, at her option. It is obvious, therefore, that there is a radical distinction between a conditional delivery, which is not to become complete and effective until the happening of some condition precedent, and a complete delivery, like the one at bar, which is sought to be defeated by subsequent contingencies which may or may not arise. In the one case, there is no contract until the condition has been complied with; in the other, there is a binding contract, not withstanding the happening of the contingency relied upon to defeat it."
The verdict of the jury in the case at bar has established it as a fact, undisputed upon the record, that the delivery of the note sued upon was a conditional one, and that the rule of Higgins v. Ridgway, supra, and other like cases, applies, and not the rule in the Jamestown Business College Ass'n Case. The contingency upon which it was to become valid and binding never arose, and hence no personal liability upon the note ever arose against the appellant in favor of Maloney, or of the plaintiffs, who, not being holders for value, are in no better position than he. The defense upon which appellant relied was, therefore, sufficient, and was established by the special verdict, which, as the record comes to us, we cannot review.
Our attention has been called to a written contract between Maloney and the appellant, dated about two months after the notes had been delivered and after they had come into the possession of the plaintiffs, which states the condition upon which the notes had been delivered somewhat differently from the statement made by appellant in his testimony. This paper does not purport to be the contract which accompanied the delivery of the notes, but a later recitation of what the contract was. At most, it was only one piece of evidence, in the shape of an admission by Hoadley, to be considered by the jury in determining what the real agreement was. As there is no exception permitting us to review the verdict upon the facts, we cannot sustain the judgment merely because of one piece of evidence which appears to bear in plaintiffs' favor.
It follows that the judgment appealed from must be reversed, and judgment directed upon the special verdict in favor of the appellant, with costs to the appellant in this court and in the court below, including the special allowance which it was stipulated upon the trial should follow the judgment.
CLARKE and DOWLING, JJ., concur.