Kittredge v. Grannis

• Citation: 140 N.E. 730,236 N.Y. 375
• Parties: KITTREDGE v. GRANNIS et al.
• Decision Date: 13 July 1923
• Court: New York Court of Appeals

236 N.Y. 375

140 N.E. 730

KITTREDGE

v.GRANNIS et al.

Court of Appeals of New York.

July 13, 1923.

Action by Benjamin R. Kittredge against Arthur E. Grannis, Robert C. Lawrence, and another. From a judgment of the Appellate Division (197 N. Y. Supp. 923), affirming a judgment of the Trial Term on a verdict for plaintiff against defendant Lawrence, the latter appeals.

Reversed, and new trial ordered.

See, also, 234 N. Y. 501, 138 N. E. 422.Appeal from Supreme Court, Appellate Division, First Department.

Wm. T. Van Alstyne, of New York City (Royal E. T. Riggs, of New York City, of counsel), for appellant.

Satterlee, Canfield & Stone, of New York City (George F. Canfield, Harlan F. Stone, and R. Randolph Hicks, all of New York City, of counsel), for respondent.

CRANE, J.

By a judgment entered upon a verdict of a jury and unanimously affirmed by the Appellate Division, the plaintiff has recovered from the defendant Robert C. Lawrence a large judgment for the conversion of 60 bonds of the New York Central & Hudson River Railroad Company, maturing in the year 1997, 25 bonds of the New York Central & Lake Shore, maturing in 1998, and 10 bonds of the Lake Shore & Michigan Southern, maturing in 1997.

The bonds were alleged to have been converted in April of 1908. This action was brought in April, 1914, and tried in December, 1921. The jury returned a verdict for the plaintiff for the full amount of $149.232.37, which included $67,057.87 of interest accruing during the 14 years between the alleged conversion and the date of the trial.

The appellant, by permission of this court, has brought up for review certain rulings made upon the trial, which he claims to have been errors, materially affecting his rights.

To fully appreciate the importance of the rulings and the bearing which they may have had upon the result of this case, it will be necessary to briefly review some of the principal facts.

The defendant was a member of the firm of Grannis & Lawrence, carrying on a business of buying and selling stocks and bonds. This firm or its predecessor, Clarke, Grannis & Lawrence, had been doing business in the city of New York since November, 1905. From its inception until April 23, 1908, it had carried on a very large business with the stock brokerage firm of Coster, Knapp & Co. The transactions had been many. On the 23d of April, 1908, Grannis & Lawrence were carrying for Coster, Knapp & Co. on margin 22,300 shares of stock, the selling price of which was $1,565,137.90. That these were bona fide and legitimate transactions in evidenced by the fact that by May 2d these accounts had been closed out and a balance of $3,069.35 paid to the representative of Coster, Knapp & Co.

Coster, Knapp & Co. had been in business as a stock brokerage concern for a great many years. It was a partnership with representation upon the floor of the Stock Exchange, doing a large business of buying and selling stocks and bonds. In 1905 it did about three-fourths of the steel specialist business that was done on the Stock Exchange. Charles Coster, the senior member of the firm, was a man in good standing, of excellent reputation.

The plaintiff in this case, Benjamin R. Kittredge, was a customer of Coster, Knapp & Co. with whom he had transacted business for five years or longer. He was a personal friend of Mr. Coster.

The books of Coster, Knapp & Co. indicated as of April 23, 1908, that he owed that firm against the securities purchased for him $60,234.78. The judge in this case so instructed the jury.

There is no denial in this case by the plaintiff of the fact that he paid $10,000 to Coster, Knapp & Co. for the purchase of securities, and that he supposed or had reason to suppose that there was a balance due in the amount stated. The plaintiff upon the trial, through his counsel and the accountant who had examined the books, claimed that the brokers had not made legitimate purchases but had bucketed his orders. However this may be, the fact remains beyond dispute that Kittredge was a customer of Coster, Knapp & Co. and had purchased securitiesfor which he knew or had reason to believe that he owed them $60,234.78 balance.

This being the relationship between these three parties, Benjamin R. Kittredge, the customer, Coster, Knapp & Co., his brokers, and Grannis & Lawrence, with whom Coster, Knapp & Co. did business, we now have these additional facts in reference to the bonds in question.

On April 10, 1908, plaintiff delivered to the firm of Coster, Knapp & Co. 70 bonds of the New York Central & Hudson River Railroad Company, 25 bonds of the New York Central & Lake Shore Collateral, 10 bonds of the Lake Shore & Michigan Southern.

Why he gave these bonds to Coster, Knapp & Co. does not appear by any direct evidence. The receipt of the brokerage firm merely recites that these bonds had been ‘received from B. R. Kittredge.’ The complaint alleges that the securities were deposited ‘for safe-keeping to be sold by said Coster, Knapp & Co. as and when directed so to be sold by the plaintiff.

The bonds were negotiable instruments payable to bearer, the title passing on delivery. The respondent in his brief in this case states as follows:

‘The bonds may have been deposited with Coster, Knapp & Co. for one of three reasons: 1. They may have been deposited for safe-keeping. 2. They may have been deposited for sale by Coster, Knapp & Co. 3. They may have been deposited as margin on a speculative account.’

The plaintiff claims in his complaint that they were given to Coster, Knapp & Co. to sell when so directed. It can hardly be supposed that the bonds were given for safe-keeping merely. This was not the business of Coster, Knapp & Co. They bought and sold bonds.

On April 23, 1908, 60 of the New York Central bonds and the New York Central & Lake Shore and Lake Shore & Michigan Southern bonds were sold by Coster, Knapp & Co. to Grannis & Lawrence for $86,000. The price was paid by check.

Five days later (April 28, 1908) Charles Coster committed suicide, and his firm went into bankruptcy.

The plaintiff claims that these bonds were converted by Coster, Knapp & Co. He has not sued Coster, Knapp & Co. or, as far as this record shows, made claim against them. All the members of that firm are dead. He has brought this action against Robert C. Lawrence as a member of the firm of Grannis & Lawrence, claiming that he was a purchaser in bad faith, and therefore liable to him for the conversion by Coster, Knapp & Co. We have these outstanding facts: Coster, Knapp & Co. and Grannis & Lawrence were separate and distinct brokerage houses, doing business with each other. Kittredge was a customer of Coster, Knapp & Co. and had given to them bonds to be sold as directed. Coster, Knapp & Co. 13 days later sold the bonds at market price to Grannis & Lawrence and received cash for them.

[1] The plaintiff was obliged to prove the conversion of the bonds by Coster, Knapp & Co. The burden was upon him to prove that they had no right to sell them. Before the jury could give a verdict for the plaintiff, it was obliged to find, as a fact, that Coster, Knapp & Co. had received no direction to sell them, and had acted contrary to his (Kittredge's) order. As to third parties, the presumption was that the brokers, having possession of negotiable instruments such as these bonds, had the right to sell them. Murray v. Wagner, 277 Fed. 32.

Mechem on Agency (2d Ed.) § 2212 (C. C. A.) says:

‘If a man voluntarily delivers his property into the customary business possession of one, like an auctioneer, broker, or factor, whose ordinary business it is to sell similar property as the agent of the owners, it is said to be a warrantable inference, in the absence of anything to indicate a contrary intent, that he intends his property to be sold also.’

Section 91 of the Negotiable Instruments Law (Cons. Laws, c. 38), defines a holder in due course:

‘A holder in due course is a holder who has taken the instrument under the following conditions:

‘1. That it is complete and regular upon its face;

‘2. That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact;

‘3. That he took it in good faith and for value;

‘4. That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.’

After proof of an infirmity or defect, the burden, no doubt, was upon the defendant to prove that he had taken the bonds in good faith, but the burden was upon the plaintiff in the first instance to prove the defect in the title. Canajoharie National Bank v. Diefendorf, 123 N. Y. 191, 25 N. E. 402,10 L. R. A. 676. In other words, the plaintiff was bound to prove that Coster, Knapp & Co. had no right to sell the bonds. He had given these negotiable instruments into the hands of brokers who made it a business of selling them. He claims that they had the right to sell them upon the happening of an event, namely, his private instructions to them. The complaint states that the bonds were to be sold when directed. The direction could have been given by word of mouth or by implication. The plaintiff knew whether he gave such direction or not. This defendant could never know. The complaint alleges the negative; it states that no such direction was given. The burden was on the plaintiff to prove this negative. Chase's Stephen's Digest of Evidence, art. 26; Harris v. White, 81 N. Y. 532. All the firm of Coster, Knapp & Co. were dead. How could the defendant show that these dead men had received instructions to sell? Plaintiff's counsel admits, as I have quoted above, that the jury would have been justified in this case in finding that Kittredge deposited the bonds for the purpose of having them sold. And he again admits in his brief what we understand to be the law under these circumstances:

‘We do not dispute that possession of negotiable bonds in the hands of a broker or...