Talmadge v. UNITED STATES SHIPPING BOARD, ETC.

• Decision Date: 11 January 1932
• Docket Number: No. 18.,18.
• Parties: TALMADGE v. UNITED STATES SHIPPING BOARD, EMERGENCY FLEET CORPORATION.
• Court: U.S. Court of Appeals — Second Circuit

54 F.2d 240 (1931)

TALMADGE v. UNITED STATES SHIPPING BOARD, EMERGENCY FLEET CORPORATION.

No. 18.

Circuit Court of Appeals, Second Circuit.

November 2, 1931.

On Rehearing January 11, 1932.

Delafield, Thorne & Burleigh, of New York City (Colley E. Williams, Claude A. Hope, and James J. Kirwin, Jr., all of New York City, and Charles T. Murphy, of New Rochelle, N. Y., of counsel), for appellant.

George Z. Medalie, U. S. Atty., and O. P. M. Brown, of Washington, D. C., for appellee.

Before MANTON, L. HAND, and SWAN, Circuit Judges.

L. HAND, Circuit Judge.

This is an action upon an assigned claim to recover from the Fleet Corporation payments made by it to the American Shipbuilding Company, which should have gone to the plaintiffs' assignors. It will be convenient to ignore the assignment and speak of the assignors as the plaintiffs. The situation arose out of a contract made in June, 1917, between the Shipbuilding Company and the defendant, by which the company was to build four wooden hulls at stated prices, payment to be made by cheques deliverable as the work progressed. In September, 1917, the Shipbuilding Company, whose resources alone were not enough to finance the project, asked the plaintiffs to lend it money as the work progressed. The plaintiffs were willing to do so, but wished as security an assignment from the Shipbuilding Company of the payments as they fell due, to which the company agreed, both sides correctly understanding that the contract gave the contractor power to assign. Since this power was, however, itself subject to the defendant's refusal, the parties thought it necessary to put their proposed arrangement before the proper officials.

One Bender was the defendant's general auditor, and it is not questioned that notice to him was notice to it. Both parties asked Bender's consent to an assignment, which while it was not expressly so stated, we may assume to have contemplated that the cheques as they became due should be made to the plaintiffs' order, and sent directly to them. Bender, perhaps because he misunderstood the request of the Shipbuilding Company, perhaps because in any case he was unwilling to make the cheques in that way, answered the plaintiffs on September twenty-fifth, that he would mail to them cheques payable to the Shipbuilding Company, adding, apparently by way of caution: "This is not a formal assignment." If Bender did not then know it, at least he learned by December tenth that the plaintiffs were financing the enterprise, and it was certainly a natural, if not inevitable, conclusion, that the cheques were delivered to them as security for their loans. A jury might well have found that he must so have understood the arrangement.

In conformity with his agreement Bender until April 19, 1918, sent all cheques to the plaintiffs; but from that time forward he or his assistants sent a great number direct to the company, ranging in amount from forty-two cents to over thirty thousand dollars, and making in all about $570,000. Of these all but about $40,000 were sent after June first. During the same period he sent to the plaintiffs eleven cheques, aggregating about $253,000, which, with those they had already received, came to about the same amount as those sent to the company. As the plaintiffs had advanced some $479,000 beyond the sums covered by the cheques they had received, they found themselves unsecured to that extent. Their theory is that it was a wrong for Bender, having notice of the assignment, to recognize the company's demand and to deliver the cheques to it; and that for this wrong the defendant is liable.

In July, 1918, the defendant wished to cancel the contract and substitute another on a "cost plus" basis. Learning of this, the plaintiffs wrote on July 26, 1918, asking what effect the cancellation would have upon their rights, and incidentally noting some surprise that they had had no payments since the first of the month. Bender answered on August ninth, saying that all payments had been mailed to them, except that "recent payments had been made to the contractor at Brunswick at his request." This he excused on the ground that he had originally acted only at the request of the Shipbuilding Company, which had power to change its instructions. Because of the proposed substitution of a new contract he must know, he said, what liabilities were open against the old, and he therefore asked the plaintiffs how far they were "interested" in it.

The plaintiffs answered by wire on the fourteenth, saying that their loans had been made to another company, which would tell Bender how much the Shipbuilding Company owed, but that it must be agreed ("it is agreed"), that the moneys due them under the old contract should be paid. Bender never consented to this, and on the twenty-first the plaintiffs signed a letter in the most sweeping terms releasing all rights which they might have in the old contract. Thereupon the new one was made and proceeded towards execution. Eventually, the Shipbuilding Company became bankrupt, and this action was commenced in July, 1927, nearly nine years after the new contract was made.

The complaint was in four counts, of which the first was originally laid upon a promise of the defendant "to abide by the terms" of an agreement between the plaintiffs and the Shipbuilding Company, under which the cheques were to be delivered to the plaintiffs. The substance of a contract was scarcely alleged; that is, that the defendant in consideration of the plaintiffs' advances to the company agreed to mail the cheques to them, but we may assume arguendo that it would have supported such proof. After the evidence was in, the judge allowed this count to be amended, and it is its amended form alone that is before us. In one article it lays a contract by which the defendant promised to mail the cheques to the plaintiffs, "upon condition that" they should finance the Ship-building Company. In the next it alleges an assignment by the Shipbuilding Company of the moneys coming due, of which the defendant had notice. While this mingles two different theories and leaves the count confused, we may treat it as alleging an assignment and notice to the defendant. The second and third counts were for fraud in inducing the plaintiffs to surrender their rights when the original contract was cancelled. The fourth was upon the defendant's promise at the time of cancellation to pay the plaintiffs the sums then remaining due, as a condition of the surrender of its assignment. The answer pleaded the statute of limitations and much else not material. It did not plead that the plaintiffs had surrendered any rights they might have in consideration of the cancellation of the contract and the execution of the substitute. At the close of the plaintiffs' case the judge directed a verdict on the ground that there was no evidence to submit to the jury, and it is from the judgment entered upon this that the appeal was taken.

The only promise, if any, which can be spelled out of the evidence, is Bender's, and Bender's authority to contract for the defendant was not shown. His duties were originally defined in an order of General Goethals, carefully describing them. Neither expressly, nor by implication, is there warrant for imputing to him any authority to contract, and in view of the defendant's public functions we should be loth to say that he had any. If any cause of action was proved, it was by assignment of the payments, an assignment of which Bender had notice, because he had consented to it, and in fact even proposed it. Undoubtedly the plaintiffs and the Shipbuilding Company originally wished to make an unlimited assignment of the right to the payments as they fell due, something which the contract expressly gave them the power to do, though the defendant might forbid it. When they found that Bender was willing only to mail the cheques to the plaintiffs, they were, however content to let the matter stand in that way. Talmadge on the stand expressly said that the eventual arrangements between them merely followed the lines of Bender's letter, and no jury could find otherwise. We are therefore to understand, whatever was their original purpose, that when the transaction became set, it was that the plaintiffs' security was to be delivery of cheques drawn to the order of the Shipbuilding Company, which that company impliedly agreed to indorse, so as to make them available. When received, the plaintiffs had a pledgee's lien upon these; such is the natural import of the transaction, and it appears to us that the evidence would have justified a finding by the jury that the company had intended to assign its rights in præsenti to that extent. Oral evidence of such an assignment was clearly admissible; the parties had not embodied their intent in a writing, and the notice to Bender was quite outside the assignment itself. Though the parties had accepted his suggestion as to their terms, his letter was not made the agreement, and certainly there was no warrant for supposing that it was intended as a definitive memorial. A cause of action was proved, and, in the light of latter day notions about the interpretation of pleadings, we think that the allegations covered the proof.

Had the Shipbuilding Company assigned their right in toto, nobody can dispute that the plaintiffs might have sued at law, though the assignment would strictly have varied the defendant's obligation, compelling it to draw cheques to the plaintiffs' order and not as stipulated. So much change in performance is, however, permissible. Restatement of Contracts, § 152. In fact, the assignment varied performance less than this, leaving the form of the cheques as the contract prescribed, and assigning only the right to their delivery. However, since the company could demand no performance but the execution and delivery of the cheques, delivery of these to the plaintiffs was complete performance, and the obligee...