Ball v. Shepard

• Decision Date: 30 May 1911
• Parties: BALL et al. v. SHEPARD et al.
• Court: New York Court of Appeals Court of Appeals

202 N.Y. 247

95 N.E. 719

BALL et al.

v.SHEPARD et al.

Court of Appeals of New York.

May 30, 1911.

Appeal from Supreme Court, Appellate Division, First Department.

Action by Charles E. Ball and others, copartners, composing the firm of Ball & Whicher, against Edward D. Shepard and another, copartners, composing the firm of E. D. Shepard & Co. From a judgment of the Appellate Division (135 App. Div. 612,120 N. Y. Supp. 830), affirming by a divided court a judgment for plaintiffs, defendants appeal. Reversed, and new trial granted.

L. Laflin Kellogg, for appellants.

H. Aaron, for respondents.

WERNER, J.

The plaintiffs and defendants, respectively, are firms of brokers, each doing business in the city of New York under the form of a limited partnership. The action is brought to recover the sum of $24,906.25, which the plaintiffs claim to have paid to the defendants under a mistake of fact. The amended complaint, which rather vaguely presents the transaction in which this payment was made, alleges that in the course of the plaintiffs' business with the defendants and others the plaintiffs frequently receive at their office various stocks and bonds which have been purchased or ordered by parties for whom the plaintiffs ‘clear,’ and upon the delivery thereof the plaintiffs pay for the same; that transactions of a similar character were of frequent occurence between the plaintiffs and the defendants, and that this course of business was well known to the defendants; that on July 28, 1908, the defendants sent to the plaintiffs, in the regular course of business thus described, 25 bonds of the Yankee Fuel Company, each of the face value of $1,000, and requested as payment therefor the sum of $24,906.25; that in the belief that these bonds had been bought by one Spingarn and that he had arranged to remit to the plaintiffs the purchase price thereof, and relying upon a representation to that effect, the plaintiffs received the bonds and gave the defendants their check for the purchase price; that, in fact, Spingarn had not bought the bonds, and had not arranged to remit the purchase price thereof, as the plaintiffs had erroneously believed; that the plaintiffs, having thus made payment to the defendants under a mistake of fact, tendered back the bonds, and demanded a return of the purchase price, and that the defendants refused to comply with the demand.

The transaction, as disclosed by the evidence, is characterized by several features which are not mentioned in the complaint. From the testimony introduced by the plaintiffs it appears that one Valentine was employed by them as a ‘customers man’ at a regular salary; that Valentine was also engaged on his own account in the sale of bonds and unlisted securities; that in these transactions he sometimes ‘cleared’ through the plaintiffs and again through others. On the morning of July 28, 1908, Valentine informed one of the plaintiffs that he had put through a $25,000 bond deal. An hour later the cashier of the plaintiffs reported that the defendants had sent over 25 bonds, and the cashier asked Mr. Chinn, one of the plaintiffs, if he was to give the messenger a check. Mr. Chinn asked the cashier if he had received a check ‘from the other end,’ and the cashier replied in the negative. Thereupon the cashier was instructed to hold the matter until Mr. Chinn could see Valentine about it. When Valentine came in, Mr. Chinn said to him, ‘There are 25 Yankee Fuel bonds over here from Shepard & Co., where is your money from the other end?’ Valentine replied: ‘Why, that is all right, Mr. Chinn, I have sold those bonds to a Mr. Spingarn of Spingarn Bros. He is an uptown milliner. He owns the building he is in. I have sold him over $200,000 bonds in the past two or three years. In fact I have sold him $280,000 to be accurate. There is no use holding Shepard up for the payment of these bonds because a certified check will be down here in an hour from Mr. Spingarn.’ Upon these representations made by Valentine, the plaintiffs' cashier was directed to draw the check of the plaintiffs payable to the order of the defendants. The check was signed by Mr. Chinn and delivered to the defendants' messenger, who then gave up the bonds. When it subsequently transpired that Valentine had not sold the bonds to Spingarn, or least that Spingarn disclaimed any transactions with Valentine, plaintiffs tendered back the bonds to the defendants, and demanded a return of their check with the result already stated.

The foregoing is a fair synopsis of the case as it stood when the plaintiffs rested and the defendants moved for a dismissal of the complaint. When this motion had been denied, the defendants presented to the court the other side of the transaction, which, as may be surmised, related wholly to the dealings between the defendants and Valentine.

From the testimony given on the part of the defendants, it appears that on the morning of July 28, 1908, Valentine went to the office of the defendants and made an offer of 90 flat, without stock, for 25 Yankee Fuel bonds. The employé to whom this offer was made communicated it to the cashier, who called up a Mr. Lincoln in the Philadelphia office, and received word that the deal might be put through on that basis. At Valentine's request the defendants' cashier was instructed to bill the bonds to the plaintiffs at 98 and interest. The bonds were sent to the plaintiffs by a messenger with instructions to get a check on delivery, and to have it certified at once. Within an hour after the bonds had been delivered to the plaintiffs, and their certified check had been given to the defendants, Valentine again went to the office of the defendants and there received a check for his profit in the transaction, which represented the difference between 90, at which he had bought, and 98, at which he had presumably sold. It did not appear that the defendants knew anything about Spingarn, or that they had any reason to suspect that Valentine had made any representations to the plaintiffs, false or otherwise. Neither was it shown that the defendants had any knowledge that the plaintiffs had given their check in the mistaken belief that the bonds had been sold to Spingarn.

Having thus briefly stated what the record discloses, it may be useful to recapitulate a few of the salient facts for the purpose of classifying the transaction. The defendants had bonds to sell. Valentine desired to purchase. A price was agreed upon. At Valentine's request, the bonds were billed to the plaintiffs, who had agreed to ‘clear’ for him; that being the technical term used in cases where one person sells to another and a third party temporarily advances the money with which to facilitate the transaction. The bonds were delivered to the plaintiffs, who gave their check in payment. By way of punctuation, it may be pertinent at this point to observe that, if there were no other facts to characterize the transaction, this would clearly have constituted a binding purchase by Valentine and a valid sale by the defendants. But we must assume that Valentine had falsely represented to plaintiffs that he had sold the bonds to Spingarn, whose check would be forthcoming, and that the plaintiffs believed that to be the fact when they gave their check to the defendants. Thus it is clear that, as between Valentine and the plaintiffs, there was fraud on the part of the former, and mistake on the part of the latter. Upon proof of this fraud and mistake it is obvious that the plaintiffs would have had a good cause of action against Valentine; but we are at a loss to understand upon what theory the plaintiffs can hold their recovery against the defendants. It is urged that the plaintiffs paid for the bonds under a mistake of fact and, therefore, are entitled to follow the purchase price into the hands of those who received it.

This claim is predicated upon the principle that a party who pays money under a mistake of fact, to one who is not entitled thereto, must in equity and good conscience be permitted to get it back. That is a wellrecognized principle of law; but we think it has no application to the case at bar. The simplest statement of the rule invoked by the plaintiffs is that, if A. pays money to B. upon the erroneous assumption of the former that he is indebted to the latter, an action may be maintained for its recovery. The reason for the rule is obvious. Since A. was mistaken in the assumption that he was indebted to B., the latter is not entitled to retain the money acquired by the mistake of the former, even though the mistake is the result of negligence. That is the general rule laid down in Kingston Bank v. Eltinge, 40 N. Y. 391, 100 Am. Dec. 516;Union Nat. Bank of Troy v. Sixth Nat. Bank of New York, 43 N. Y. 452, 3 Am. Rep. 719;National Bank of Commerce v. National Mechanice' Banking Ass'n, 55 N. Y. 211, 14 Am. Rep. 232;Lawrence v. American Nat. Bank, 54 N. Y. 432; and Sharkey v. Mansfield, 90 N. Y. 227, 43 Am. Rep. 161, which are relied upon by the plaintiffs. The difference between the case at bar and those relied upon by the plaintiffs is concretely illustrated in Lawrence v. American Nat . Bank, supra. There the plaintiffs, being indebted to P. on account, made out a statement of the account and paid to the defendant, the assignee of P., the amount which appeared to be due. It transpired that the plaintiffs had made a mistake in omitting to charge the defendant with $5,000 which they had loaned to P. and for which they were entitled to credit. Here it will be well to note that the reason of the rule which was applied in the Lawrence Case must, of necessity, carry with it at least two limitations.

One is that the mistake which is relied upon as the basis of recovery must arise in the transaction between the parties to the action; and the other is that even in such a case there can be no recovery if by reason of the payment the party receiving it has so...