Court Opinion

ID: 5215739
Source: CourtListenerOpinion
Date Created: 2022-01-06 16:22:41.948157+00
Date Added: 2024-06-11T08:27:26.101938
License: Public Domain

Ingraham, P. J.
(dissenting):
As the result of an agreement between the defendant and one Maloney, the terms of which will be hereafter referred to, the defendant prepared three promissory notes, each of which were dated October 1, 1906, which Maloney promised to pay to the order of. himself, $2,268.33, value received, with interest at six per cent from date, one of which was payable four months after date and one payable eight months after date. Maloney indorsed the notes, the defendant Hoadley indorsed them, and they were delivered to Maloney. Two of these notes were subsequently transferred to the plaintiffs, and to recover on those two notes this action was brought. The defendant interposed an answer admitting the indorsement of the notes sued on, alleging that at the time of the indorsement the plaintiffs were brokers dealing in cotton at the New York Cotton Exchange and maintained an office in the city of Boston, which was in charge of Maloney, setting up certain transactions in cotton in the name of “ Fred. Williams, Special,” in which Maloney made trades in cotton by making purchases and sales from time to time in accordance with the dictates of his own judgment for the account of the defendant and for his benefit; that prior to the indorsement of the notes Maloney had told the defendant that he had opened an account in a fictitious name for the benefit of the defendant who was to receive the proceeds but was not and should not be called *196upon or required to make deposits of margins and should not in any event be cálled upon or. liable to pay aiiy money for losses if there should be any ; that defendant had repudiated such account and did not advance any money on margins and did not give the. plain tiffs directly or through Maloney any orders for the purchase or sale of cotton and directed Maloney to close out the account or do anything else in'- relation to it that Maloney or the plaintiffs desired ; that the defendant was the owner of a large amount of the capital stock of a mining and smelting company and that previous to the 1st of October, 1906, the defendant made an arrangement with Maloney whereby Maloney was to try to sell some of the said mining stock that on or about the first of October the plaintiffs demanded a settlement of this special account from Maloney who, not being able to pay the amount of the indebtedness offered to give the plaintiffs promissory notes aggregating the total 'amount of the loss on said account and plaintiffs agreed and promised to accept said note's provided Maloney would procure the indorsement of the defendant thereon; that thereupon Maloney applied to the defendant to indorse said notes; that defendant agreed with the plaintiffs and with Maloney that for the accommodation of Maloney and the plaintiffs and for the further purpose of indicating his assent to the application of the proceeds of sale of the mining stock to the payment of- the notes he would indorse said notes upon condition .that payment thereof should only be made out of the proceeds of the sales of the said shares of mining stock as said sales should be made by Maloney, the stun to be paid being a part or portion of the commissions that Maloney would be. entitled to receive from the defendant for the sale of shares of the mining stock; that Maloney and the plaintiffs promised the defendant that if he would so indorse the notes as aforesaid payment thereof should be made out of the proceeds of such sale of mining stock as aforesaid and in no other way should payment of said notes be demanded or sought to be enforced‘against the defendant; that defendant indorsed said notes relying upon' said promise and agreement; that Maloney never did sell any material portion of tlie mining stock and ■ never did apply the proceeds of the sale of the mining stock to the payment of the said notes or any of them.
This answer, therefore, admits the indorsement and delivery of *197the note ¿n question, stating as a defense that it was on condition that the notes should not be paid as by their terms provided, but should be paid out of the proceeds of the sale of the mining stock. The jury found in answer to a special question submitted to it that it was .agreed by Maloney with the defendant at the time the notes in suit were given that he would keep, the notes in his possession as evidence of his, Maloney’s, authority to apply the money received on the sale of said mining stock in payment of the said notes; that the notes would be held and the proceeds of such sales applied to their payment, BLoadley not to be compelled to pay anything on them otherwise than out of the proceeds of the sale of such stock; and also that Maloney made such promise or agreement on behalf of the plaintiff’s firm. The court, prior to the submission of these questions to the jury, had entertained a motion by the defendant to dismiss the complaint, and also a motion of the plaintiffs for the direction of a verdict, and had reserved decision of these motions; and after these special questions were answered by the jury, the court directed a verdict for the plaintiffs for the full amount of the notes, and from the judgment entered thereon the defendant appeals.
The answer itself does not allege that there had been a conditional delivery of the notes. The defendant admitted that he indorsed the notes, and then, as a special defense, alleges that for the accommodation of the defendant Maloney and the plaintiffs, and to indicate his assent to the payment thereof from the proceeds of sale of the mining stock, he indorsed the notes upon condition that the payment thereof should only be made'out of the proceeds of sale of said mining stock, and that in no other way should payment of the notes be demanded or sought to be enforced against this defendant. Upon the trial the defendant testified that he was informed of the fact that a special account had been opened to trade in cotton, and that he understood that this account was opened for his benefit; that, as he understood the proposition, he thought that he was to get all the profits and somebody else was to stand all the loss; that he was not to be liable for any losses; that after this loss had been incurred upon this account, and in the latter part of September, 1906, he had .an interview in New York with two of the plaintiffs and Maloney ; that defendant then told the plaintiffs that he would make no settlement of the account, and that he had never author*198ized. the. plaintiffs to buy or sel| any stocks or cotton for him ; that on the twenty-fifth of August he had instructed Maloney to close out the- account, and- said that he wanted no. profits in it and would pay no losses ; that Maloney then stated that he had understood the defendant to say over the telephone that the plaintiffs should continue to trade on the account and not to close it out; that one of the plaintiffs then said: “Well, then, it is up to Mr. Maloney. He has got to' settle, and it means that he is going to lose his job, lose his position.” Defendant, in answer to this, told the plaintiffs that he was satisfied that Maloney intended to make some'money for him on the deal, and that his intentions were honest-; that plaintiffs replied that if the defendant did not pay it Maloney would have" to stand for it and lose his position; that- defendant then said he did not want Maloney to losé his position; that he explained.his mining proposition to them and said he thought if they could handle this stock for him, or have Mr. Maloney handle it for him, there was a.- way of Maloney’s paying the other money and keeping his position; that the meeting, how7. ever, cáme to an end without any definite understanding; that in. relation to plaintiffs’ renewing Maloney’s contract with them, defendant said that he wanted plaintiffs to renew Maloney’s contract or keep Maloney under contract with them for two or three years; that he did not want Maloney to losé his job for trying to make some money for him. On cross-examination defendant testified that lie' had received notices over the telephone and from Maloney personally in relation to the purchases and sales included in this account; that subsequent to this meeting and on the-second or third of October he saw Maloney and told him that if the plaintiffs would allow Maloney to handle this mining stock he could pay the notes out of the first sales of stock; that Maloney then -said he only wanted the notes as evidence that he was authorized to make the sale and apply, the proceeds of the sale to the payment of the notes; that the notes should not leave Maloney’s possession, but Maloney would hold them; that he, Maloney, had already sold 2,000 shares of the stock, so that there was no question about paying the notes.out of the proceeds of the stock; that lie need "not be worried about the future or . being called on to pay the. notes. This testimony was objected to upon the ground that it- was not within the pleadings and related *199to a defense not pleaded. The court then stated that it would strike out the testimony in regard to Maloney agreeing not to part with the notes, when defendant moved to amend the answer tó which plaintiffs’ counsel objected on the ground that it was anew and separate defense. The court then stated, it would receive the testimony with the privilege to the defense to amend their answer to conform to the proof at the close of the trial, to which plaintiffs’ counsel excepted.. The witness then testified that relying on this statement by Maloney he indorsed the notes and delivered them to Maloney; that the notes were in his handwriting signed by Maloney and indorsed by himself; that a few shares of the mining stock were sold by Maloney, hut that the defendant received nó money either from the plaintiffs or from Maloney on account thereof; that defendant indorsed these notes in consideration of Maloney’s statement that he had already sold 2,000 shares of the mining stock at seven dollars and fifty cents per share and upon Maloney’s assurance that he would not let these notes out of his hands. The defendant then produced a contract with Maloney which was executed on the 7th day of December, 1905, over two months after the notes in suit were given between the defendant Hoadley as party of the first part and Maloney of the second part, by which Maloney agreed to undertake to sell or cause to be sold 30,000 shares of the capital stock of this mining company at not less than $— per share, acknowledging receipt of three promissory notes signed and indorsed by said Maloney and indorsed by Hoadley aggregating $6,805, and payable in four, eight and twelve months ; “ said notes being in full payment of account of Fred Williams with Carpenter, Baggbt & Co., and a full release as against said Hoadley for all accounts and demands to date. It being understood that the indorsement of said Hoadley of said notes is in consideration of said Maloney’s agreement to undertake the cause of the sale of said stock at $ — per share.” The agreement then provides for the sale by Maloney of this stock and the application by him of the proceeds thereof to the payment of the notes in question and the payment of the balance of the proceeds to Hoadley; that Maloney in entering into the contract enters into it in his own personal capacity and not as an agent or representative of the plaintiffs.
Whatever agreement was entered into at the time the notes were *200indorsed I think that this subsequent agreement' between Maloney and the defendant entirely changed the situation. If there was a conditional delivery of the notes to Maloney at the time they were executed by this agreement for a. valid consideration the notes then became existing, enforcible obligations in the hands of Maloney given to expressly carry out the arrangement that defendant suggested to the plaintiffs at the interview in New York in September which would provide for the payment of the notes and thus enable Maloney to retain his position with the plaintiffs and prevent the discharge of Maloney from .plaintiffs’ employ, a condition which Hoadley expressly told the plaintiffs he desired to avoid. Hoadley does not dispute the binding force of this agreement. He produced it himself upon the trial and it was introduced in evidence. There is nothing in this agreement that limits the obligation upon the notes so that the defendant should not be liable on them unless the proceeds of the sale of the stock was sufficient to pay the notes. By it Maloney admitted the receipt of these notes indorsed by the defendant Hoadley, and agreed with Hoadley that “ said notes being in full payment of account of Fred Williams with Carpenter, Baggot & Co., and a full release as against said Hoadley for all accounts and demands to date. It being understood that the indorsement of said Hoadley of said notes is in consideration of said Maloney’s agreement to undertake the cause of the sale of said stock at $ — per share.” After the execution of this agreement the notes were relieved from any prior understanding or condition upon which they were executed and delivered. If the notes had been given at the time of the execution of this agreement and in accordance with its terms it is clear that it. would be no defense to the notes in the hands of a third party that Maloney had been unable to sell any of this stock. If there was a violation of any undertaking of Maloney to sell the stock by which the defendant sustained damage, it is possible that he might have alleged the violation of the agreement and the damages sustained by. way of counterclaim or offset upon the amount due on the. notes. But no such counterclaim or offset was alleged in the answer. After the execution of this agreement, therefore, the notes were in the possession of Maloney under a valid agreement as between himself and Hoadley by which the obligation that Hoadley assumed upon the notes was to release him from all claim by the plaintiffs or *201Maloney on this Fred Williams account. The notes being thus absolute obligations the condition agreed to at the time of the making and delivering of the notes to Maloney was waived and Maloney became entitled to dispose of the notes and transfer them to the plaintiffs in discharge of the Williams account and the plaintiffs would thus be entitled to enforce therm Whatever had happened before upon the execution of this agreement these notes became existing obligations payable as prescribed upon their face, and both the maker and indorser then assumed the obligation expressed in the notes themselves.
I do not think that evidence as to this alleged conditional delivery of the notes was available to the defendant upon this trial. As before stated, the answer did not specially allege a conditional delivery. When it was first attempted to prove such a conditional delivery it was objected to as not within the defense set up in the answer, but the court received the evidence and allowed the defendant to move to amend the answer. To this the plaintiffs excepted. At the end of the defendant’s case counsel for the defendant moved to amend the answer By alleging that at the time of the delivery of the notes Maloney agreed with defendant Hoadley that he would retain such notes in his possession and under his control; that under no circumstances were these notes to be delivered out of his possession; and that said notes .should be paid entirely and solely out of the proceeds of the sale of stock of the mining and smelting company and in no other way. This amendment was objected' to upon the ground that it set up a new defense and the court had no power to make it upon the trial. The objection was overruled and the amendment granted, to which the plaintiffs excepted. The defense as originally pleaded was that although the note was given absolutely on its face it was agreed that it should not be paid as the writing expressed but in a different way. Undoubtedly upon the defense as it stood the evidence as to any conditional delivery was inadmissible. The amendment sought to interject into the case upon the trial the defense of a conditional delivery and that I do not think the court had power to allow. It is now settled in this State that evidence allowing a maker or indorser of a promissory note to avoid his contract because of a contemporaneous oral agreement that the note should not be paid according to its terms is *202incompetent as tending to vary or change a written instrument. (See Jamestown Business College Assn. v. Allen, 172 N. Y. 291, where the question is fully discussed.) There the defense relied upon was that the: note was to become void upon the happening of a future event, and it was held that such an agreement could not be proved to defeat the obligation-assumed by the execution and delivery of the note. The court there defines a conditional delivery to be one by which the note was not to be-regarded as delivered until the happening of a future event. But where the note was actually deliv ered and to be a valid instrument until a future event should occur when upon a contingency it should become void there was not a conditional delivery. To set up the defense of a conditional delivery was the interposition of a new defense on the trial and it was, I think, error to allow , the amendment. The defendant having indorsed Maloney’s own note and delivered it to Maloney before any liability could arise, the parties must have contemplated that the note should be delivered to á third party. The former relation of Hoadley to Maloney and the plaintiffs clearly shows to whom it was understood this note was to be ultimately delivered, and when described as given to discharge Hoadley’s obligation to the plaintiffs and as a full release of Hoadley for all accounts and dividends to date, Hoadley became liable on the notes when delivered to plaintiffs and received by them in discharge of Maloney’s and Hoadley’s obligations.
I think, therefore, the court below was quite right in directing a verdict for the plaintiffs upon the testimony, and that the judgment ' appealed from should .be affirmed.
McLaughlin, J., concurred.
Judgment reversed and judgment directed upon special verdict in favor of appellant, with costs to appellant in this court and in the court below, including special allowance.