Kittredge v. Grannis

• Decision Date: 31 December 1926
• Citation: 155 N.E. 88,244 N.Y. 168
• Parties: KITTREDGE v. GRANNIS et al.
• Court: New York Court of Appeals Court of Appeals

244 N.Y. 168

155 N.E. 88

KITTREDGE

v.GRANNIS et al.

Court of Appeals of New York.

Dec. 31, 1926.

Action by Benjamin R. Kittredge against Arthur E. Grannis and others. From a judgment of the Appellate Division (215 App. Div. 486, 214 N. Y. S. 33), unanimously affirming a judgment of the trial court entered on a verdict of a jury in favor of plaintiff, defendants appeal.

Affirmed.

See, also, 215 App. Div. 491, 214 N. Y. S. 25; 216 App. Div. 754, 214 N. Y. S. 866; 244 N. Y. 182, 155 N. E. 93.

Hiscock, C. J., and Crane, J., dissenting.Appeal from Supreme Court, Appellate Division, First department.

W. T. Van Alstyne and R. E. T. Riggs, both of New York City, for appellants.

R. Randolph Hicks, George Gordon Battle, and George F. Canfield, all of New York City, for respondent.

ANDREWS, J.

On April 10, 1908, the plaintiff delivered to Coster, Knapp & Co., a firm of brokers with whom he had theretofore done business, 105 negotiable railroad bonds payable to bearer. Ninety-five of these bonds having a market value then and thereafter considerably in excess of $80,000 are involved in this litigation. Precisely what was the nature of the transaction between the plaintiff and his brokers does not appear. Indeed the jury was told that ‘there is no evidence as to what transpired between the plaintiff Kittredge and Charles Coster on April 10th, 1908, or subsequent thereto other than the fact that the defendant Kittredge delivered the securities in question to Mr. Coster.’ With such a record the appellant seems to concede, and such a concession is necessary, that the bonds were deposited either (1) for the present or future sale; (2) as collateral to the Kittredge account with his brokers; or (3) for safe-keeping.

On April 23d these 95 bonds were delivered by Coster, Knapp & Co. to another firm of brokers, Grannis & Lawrence, of which firm the defendant was a member. In return Grannis & Lawrence gave Coster, Knapp & Co. a check for $86,000, and on the same day sold them to third parties for a like amount.

[1] Then this action was begun against Lawrence. The claim of the plaintiff is that the bonds were converted by Coster, Knapp & Co., that Grannis & Lawrence did not become holders in due course, and that consequently a recovery may be had against Lawrence as a member of his firm for the amount received by it on the sale, the theory being that it was money had and received for the benefit of the plaintiff. The defendant, for his part, denies the conversion, and alleges that in any event Grannis & Lawrence purchased the bonds in good faith and for value. Upon the issues so framed the plaintiff recovered this judgment, which has been unanimously affirmed by the Appellate Division. Only questions of law, therefore, remain for our consideration.

Upon the former appeal in this action we stated certain rules that must govern the result to be reached. The burden was placed upon the plaintiff to prove the conversion of the bonds by Coster, Knapp & Co. this done, the burden was upon the defendant to show that Grannis & Lawrence were holders in due course.

[2] We first consider the question of the conversion. Concededly there was a conversion if the bonds were deposited with Coster, Knapp & Co. for safe-keeping. So, also, if they were deposited as collateral to secure the plaintiff's account. And this whether the transaction between Coster, Knapp & Co. and Grannis & Lawrence was a sale or a loan with the bonds as security. If the former, under the circumstances developed here, Coster, Knapp & Co. had no right to make such a sale. Lawrence v Maxwell, 53 N. Y. 19. If the latter, they had no right to pledge them for an amount in excess of that due them from the plaintiff. Strickland v. Magoun, 119 App. Div. 113, 104 N. Y. S. 425;Rothschild v. Allen, 90 App. Div. 233, 86 N. Y. S. 42, affirmed, 180 N. Y. 561, 73 N. E. 1132;Wood v. Fisk, 215 N. Y. 233, 109 N. E. 177. This rule is now enforced by statute. Penal Law (Consol. Laws, c. 40) § 956. At most the indebtedness of the plaintiff was about $60,000, and the bonds, if pledged, were pledged to secure $86,000; and it is not claimed that the brokers had in their possession or under their control any similar bonds. Therefore under either of these alternatives, there was a conversion as a matter of law. It was shown by uncontradicted evidence, and the exceptions taken by the defendant become of no importance.

[3] We next come to the possibility that the deposit was made for present or future sale for the benefit of Kittredge. If this is the situation, Coster, Knapp & Co. had no power to pledge the bonds for their own benefit, and there is testimony in the record which would fully justify the finding that such was the transaction between the two firms of brokers. The difficulty is that while the court at one point told the jury that the bonds were pledged with Grannis & Lawrence,he later substantially submitted to them the question as to whether they were pledged or sold; and upon either theory they were instructed as to what constituted conversion. Their verdict was a general one, so we are not informed which view they adopted. Therefore the admission of incompetent and material evidence tending to show conversion if the transaction was in fact a sale, or improper and material instructions as to the law in such an event would require a reversal.

Considerable testimony was received for the purpose of proving that through a long series of years Coster, Knapp & Co. had stolen or converted all the stock and securities that came into their hands belonging to most of their customers. We said on a former appeal that such testimony might not be received for the purpose of proving that the plaintiff's bonds were converted. Kittredge v. Grannis, 236 N. Y. 375, 389, 140 N. E. 730. We adhere to that ruling. But again, this testimony was not sufficiently material to require a reversal if certain entries in books kept by Coster, Knapp & Co. were properly admitted in evidence. We refer to the socalled Marshal account. This account was received solely on the question of conversion.

The question is, to state it once again, assuming that Kittredge gave Coster, Knapp & Co. authority to sell these bonds, assuming also that they were sold to Grannis & Lawrence, was there a conversion? Many at least of the entries in question never so far as appears came to the attention of Lawrence. They were kept in the regular books of account of Coster, Knapp & Co., and were made in the regular course of their business. All of the partners of that firm are dead. The entries charged the firm with the receipt of the bonds, the transfer of them to their own account, and the receipt of moneys belonging to the plaintiff on their sale. In connection with other facts they showed conclusively that the bonds if sold were sold by Coster, Knapp & Co., not for the account of the plaintiff, but with the preconceived idea of appropriating the proceeds. Indeed, the appellant in his brief concedes that fact. Were these entries, therefore, properly received in evidence against a third party? Was the intent with which the authorized sale was made material as showing that such a sale was in fact a conversion of the bonds themselves and not merely of their proceeds, even if coupled with the fact that Grannis & Lawrence knew of such intent?

[4][5] An exception to the general rule excluding hearsay testimony is found in the reception, as against A., of declarations made by B., who is dead, known by him when made to be against his pecuniary interest. Livingston v. Arnoux, 56 N. Y. 507, 519;Brennan v. Hall, 131 N. Y. 160, 166,29 N. E. 1009;Tompkins v. Fonda Glove Lining Co., 188 N. Y. 261, 80 N. E. 933;Leask v. Hoagland, 205 N. Y. 171, 175,98 N. E. 395, Ann. Cas. 1913D, 1199;Mahaska County v. Ingalls, 16 Iowa, 81. To be admissible such statements must be made by or with the authority, express or implied, of the deceased. All partners are supposed to have knowledge of entries in their books made by their clerks in the regular course of their business. Kohler v. Lindenmeyr, 129 N. Y. 498, 29 N. E. 957; Chamberlain on Evidence, § 1363; Hill v. Manchester & S. W. Co., 2 Nev. & M. 573. Presumptively both partners had access to such books. Rowley on Partnership, § 915. On their face these particular entries may not have been against the interest of Coster, Knapp & Co. But earlier ones in the same account tend to show that the whole Marshal account was fictitious and in reality represented transactions of the firm, and were used by them to conseal misappropriation of the property of their customers. The later ones show the transfer of bonds into this personal account, the transfer of them to Grannis & Lawrence, and the receipt by them therefor for their own use of $86,000. All these concededly were the plaintiff's bonds. They thus show a pecuniary liability on the part of the brokers, and they must have realized that fact. At least often whether a certain entry is or is not against the interest of one making it must be shown by extrinsic evidence. ‘A fact thus stated may or may not be against interest according to circumstances.’ Wigmore on Evidence, § 1463. Such circumstances may and must be shown.

[6][7] If then the testimony was competent as we think it was, was it also material? ‘The title of a person who negotiates an instrument is defective * * * when he negotiates it in breach of faith, or under such circumstances as amount to a fraud.’ Negotiable Instruments Law, § 94 (Consol Laws, c. 38. In other words, the sale of a negotiable instrument in breach of faith or fraudulently is a sale made without right. It is an unlawful interference with the owner's property therein and consequently a conversion. Here if Coster, Knapp & Co. had authority to sell the bonds, it was to sell them for the benefit of the plaintiff and in his interest. The authority to sell was coupled with this limitation. They sold them for objects beyond the power...