American Surety Co. v. American Mills Co.

• Decision Date: 15 January 1920
• Docket Number: 16-36.
• Parties: AMERICAN SURETY CO. OF NEW YORK v. AMERICAN MILLS CO.
• Court: U.S. District Court — Southern District of New York

262 F. 691

AMERICAN SURETY CO. OF NEW YORK v. AMERICAN MILLS CO.

No. 16-36.

United States District Court, S.D. New York.

January 15, 1920

Henry C. Willcox, of New York City (Henry C. Willcox and Allan C Rowe, both of New York City, of counsel), for plaintiff.

Henry Uttal, of New York City (Hamilton Moses, of Chicago, Ill and Herbert J. Haas, of Atlanta, Ga., of counsel), for defendant.

ROSE District Judge.

The plaintiff seeks the cancellation of a bond given to the defendant by the Hartenfeld Bag Company as principal, and itself as surety, and an injunction against suits thereon. The three corporations concerned are of New York, Georgia and Illinois, respectively, and will be herein severally called the 'surety,' the 'Mills,' and the 'Bag Company.'

For seven years, ending in 1918, the former had bought second-hand bags from the latter, sometimes to the amount of $100,000 annually. Frequently, if not usually, payment had preceded delivery. In August, 1918, the Bag Company was behind in its shipments, and some of the bags which it had furnished had been undergrade. At that time the Bag Company was indebted to the Mills in the amount of about $12,000. Nevertheless, when near the end of August the Mills bought more bags, the Bag Company persuaded it to give, for their purchase price, its notes, aggregating something over $9,000. The Bag Company had been in the habit of selling its accounts to the Commercial Credit Company of Baltimore. Notwithstanding that the notes of the Mills had fully paid for the last purchases, the Bag Company sold its bill for them to the Credit Company, and a few days later discounted the promissory notes of the Mills with a Chicago backer. In this way it obtained double payment for bags which it had certainly never shipped, and which it had probably at that time not even bought.

On the 24th of September, through a telegram from the Credit Company telling the Mills that it had bought the Bag Company's account against it, and stating that a formal notice to that effect had been mailed, the Mills got wind of at least part of what had happened. In due course, the letter of the Credit Company came to hand. It asked to be promptly informed if the Mills claimed any payment, credits, notes, etc., against the account. The Mills, surprised, as it must have been, left the communications of the Credit Company unanswered, but within less than an hour after the receipt of the telegram busied itself in another direction.

The president of the Mills wired the president of the Bag Company that he would arrive at the La Salle Hotel in Chicago on the next evening, September 25th, and to meet him there without fail. The Bag Company's official was not on hand that night, but the next day the president of the mills did see him, and for the next three days they were in more or less constant touch with each other, and then if not before, the president of the Mills learned that his company's notes had been discounted. It was explained to him that what had happened had been due to the mistake of a 'bonehead clerk.'

It is admitted that the president of the Bag Company said it was short of money. There is more or less dispute as to the details of what passed between the two men. It is asserted that the president of the Mills asked for money or for security, real estate or other, while he says he did not. He admits that he came to Chicago to get his account settled. What was actually done speaks for itself.

During the war, it not infrequently happened that sellers of goods were forced to ask for advance payments, and some, if not all, of the Surety Companies, got into the habit of guaranteeing deliveries to buyers. On one or two occasions, the surety had done so much for the Bag Company. As a result of whatever passed between the officials of the Mills and of the Bag Company, the latter, on the 27th, entered into a formal contract to sell the Mills $22,100 worth more of bags, and acknowledged the receipt of that sum of money. The contract provided that deliveries under it should be guaranteed by a surety bond.

The president of the Mills admits that, when he came to Chicago, he had no intention of buying bags, and it is further admitted that, prior to the receipt of the surety bond, he wired the Mills nothing was yet accomplished, but to hold any reply to the Credit Company. The Bag Company took the contract to the surety, and on the 28th obtained from it the bond now in controversy, by which the surety guaranteed the deliveries. This bond was at once turned over to the president of the Mills, and on the same day he started back to Atlanta. The statement in the contract that the $22,100 had been paid was untrue. The president of the Mills, on his return to Atlanta, conferred with its counsel, and on October 1st had the Mills draw its check for $22,100 to the order of the Bag Company. The check was certified, and then with it and his legal adviser he returned to Chicago on the 3d of October.

After having agreed with the president of the Bag Company that the latter was indebted to the Mills in the...