author: Andrews, J.

text:
    Benjamin R. Kittredge, Respondent, v. Arthur E. Grannis et al., Defendants, and Robert C. Lawrence, Appellant.
    Conversion. — brokers — delivery of negotiable bonds to stockbrokers presumptively for present or future sale, as collateral, or for safekeeping — transfer of bonds to another firm for value and sale by latter — action by owner of bonds against latter firm to recover as for money had and received on ground transfer was not in due course — burden of proof — hearsay testimony — exception to rule — reception against one of declarations of another who is dead — partners presumed to have knowledge of entries in firm books in regular course of business — conversion as matter of law — sale in bad faith — entries in books against interest properly received in evidence — evidence that defendant knew of custom of plaintiff’s brokers to. convert securities of their customers and misappropriate proceeds competent on question whether defendant became holder in due course.
    1. Negotiable bonds of the plaintiff were delivered by him to Coster; Knapp & Co., a firm of brokers. The precise nature of the transaction not being shown it is to be presumed that they were so delivered either (1) for present or future sale, (2) as collateral for his account with the. brokers, or (3) for safekeeping.
    2. In turn these bonds were delivered by Coster, Knapp & Co. to Grannis & Lawrence, also brokers, of which firm the defendant was a member. They paid Coster, Knapp & Co. $86,000 therefor, and in turn sold them to third parties for the like amount. This sum the plaintiff seeks to recover as money had and received for his benefit. 3. The issues involved are (1) whether the bonds were converted by Coster, Knapp & Co., and (2) if so, whether Grannis & Lawrence were holders in due course. As to (1) the burden rests on the plaintiff; as to (2) upon the defendant.
    4. An exception to the general rule excluding hearsay testimony is the reception against one of the declarations of another who is dead, known by him when made to be against his pecuniary interest. As to such declarations contained in books of a firm made by its clerks in the regular course of business all partners are presumed to have knowledge.
    5. Under the facts of this case there was a conversion as a matter of law unless the bonds were deposited for sale and were in fact sold by Coster, Knapp & Co. to Grannis & Lawrence. Even so, there was a conversion or a sale in bad faith, and under circumstances amounting to fraud if it was made with the preconceived idea of making it not for the benefit of the owner but for the benefit of Coster, Knapp & Co. Upon this point entries against interest contained in the books of Coster, Knapp & Co. were properly received in evidence. As they showed without contradiction the existence of such an intent any errors in the admission of other evidence upon the subject of conversion become immaterial.
    6. Knowledge by Grannis &■ Lawrence of the general fraudulent course of dealing of Coster, Knapp & Co. with their customers between 1894 and 1905 may be considered by the jury upon the question as to whether that firm became holders in due course if the bonds were purchased by them in 1908. In connection with other circumstances it justified a finding against the defendant upon that point.

      Kittredge v. Grannis, 215 App. Div. 486, affirmed.
    (Argued October 6, 1926;
    decided December 31, 1926.)
    Appeal, by permission, from a judgment of the Appellate Division of the Supreme Court in the first judicial department, entered February 16, 1926, unanimously affirming a judgment in favor of plaintiff entered upon a verdict.

      Royal E. T. Riggs and William T. Van Alstyne for appellant.
    The court erred in admitting in evidence the Marshall account and the W. B. C. and C. C. joint account as relevant upon the issue whether Kittredge had or had not ordered the sale of his bonds; and in its charge to the jury that they could consider proof of conversions of other customers’ securities as bearing upon the issue whether Klttredge had or had not ordered the sale of his bonds. (Kittredge v. Lawrence, 236 N. Y. 375.) The court erred in admitting testimony as to the previous transactions of Coster, Knapp & Company with their customers upon other occasions on the issue of good faith as to the transaction in suit. (McBee, Inc., v. Shoemaker, 174 App. Div. 291; Cheever v. Pennsylvania R. R. Co., 150 N. Y. 59; Carlysle v. Norris, 215 N. Y. 400; Murray v. Lardner, 2 Wall. 121; State Bank v. U. S., 114 U. S. 401.) A broker may repledge securities of a customer pledged with him as margin along with securities of another customer, subject only to his liability for conversion if he is unable to tender to his customer, upon demand, not necessarily the identical securities originally deposited, but similar shares of the same stock. (Stewart v. Drake,, 46 N. Y. 49; Markham v. Jaudon, 41 N. Y. 235; Caswell v. Putnam, 120 N. Y. 153; Lawrence v. Maxwell, 53 N. Y. 19; Douglas v. Carpenter, 17 App. Div. 329; Sprague v. Currie, 133 App. Div. 18; Richardson v. Shaw, 209 U. S. 365; Content v. Banner, 184 N. Y. 121; Ex parte Niven, 174 Fed. Rep. 627; Matter of Ennis, 127 Fed. Rep. 728; West v. McLaughlin, 162 Fed. Rep. 127.) It was reversible error for the trial justice to receive in evidence the records of Coster, Knapp & Company, as against the defendants, for the purposes offered by the plaintiff. (Hovell v. The Evergreens, 242 N. Y. 216.)

      R. Randolph Hicks, George Gordon Battle and George F. Canfield for respondent.
    The fact 'that the plaintiff’s bonds were negotiated by Coster, Knapp & Company “ in breach of faith and under such circumstances as amount to a fraud ” was established beyond any rational doubt. (Merchants Bank v. Livingston, 74 N. Y. 223; Shaw v. S. H. N. Co., 144 N. Y. 220; Carman v. Beach, 63 N. Y. 97; Smith v. Stewart, 5 Ind. 220; Emerson v. Fisk, 6 Maine, 200; Sandborne v. Coleman, 6 N. H. 14;
      Case v. Jennings, 17 Tex. 661; German-American Bank v. Cunningham, 97 App. Div. 244; Peterson v. Fowler, 162 App. Div. 21; Interborough Brewing Co. v. Doyle, 165 App. Div. 646; Nickerson v. Ruger, 76 N. Y. 279.) The .books of Coster, Knapp & Company, including the J. G. Marshall and the W. B. C. and C. C. joint accounts, were relevant and legally admissible evidence both as to the negotiation of the bonds in breach of faith by Coster, Knapp & Company, and the taking of those bonds in bad faith by the defendants. (Boyd v. Boyd, 164 N. Y. 234; People v. Molineaux, 168 N. Y. 264; People v. Duffy, 212 N. Y. 57; Altman v. Ozdoba, 237 N. Y. 218; People v. Dominick, 107 N. Y. 13; Baldwin v. Short, 125 N. Y. 553; Converse v. Sickles, 16 App. Div. 49; 161 N. Y. 666; Brownall v. Briggs, 173 Mass. 529; Bliss v. Sickles, 142 N. Y. 647; Harrington v. Mining Co., 48 Pac. Rep. 758.) The books of Coster, Knapp & Company, so far as they were admitted in evidence, contained entries proved by the witness who made them, if living, or entries made in the regular course of business of Coster, Knapp & Company and against the interest of deceased persons, all the members of the firm of Coster, Knapp & Company being deceased. (Guy v. Mead, 22 N. Y. 462; Peck v. Valentine, 94 N. Y. 569; Rathbone v. Hatch, 94 App. Div. 151; Mayer v. 2nd Ave. Ry. Co., 102 N. Y. 572; Heike v. U. S., 192 Fed. Rep. 83; Fisher v. Mayer, 67 N. Y. 73; Lyon v. Riker, 141 N. Y. 225; Smith v. Blakely, L. R. 2 Q. B. 326; Davis v. Humphrey, 6 M. & W. 153; Middleton v. Melton, 10 B. & C. 317; Hingham v. Ridgeway, 10 East, 109.) The knowledge of Lawrence is the knowledge of the firm. (Dresser v. Norwood, 17 Com. Bench [N. S.], 466; Distilled Spirits, 11 Wall. 356; Constant v. University of Rochester, 111 N. Y. 604; Holden v. N. Y. & Erie Bank, 72 N. Y. 286; Cragie v. Hadley, 99 N. Y. 131; Henry v. Allen, 151 N. Y. 1; Randall v. Knevals, 27 App. Div. l46; Marietta, etc., R. R. Co. v. Mowry, 28 Hun, 79.)
   Andrews, J.

On April 10th, 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 seéms to concede, and such a concession is necessary, that the bonds were deposited either (1) for present or future sale; (2) as collateral to the Kittredge account with his brokers, or (3) for safekeeping.

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.

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.

We first consider the question of the conversion.' Concededly there was a conversion if the bonds were deposited with Coster, Knapp & Co. for safekeeping. 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. Mogoun, 119 App. Div. 113; Rothschild v. Allen, 90 App. Div. 233; affd., 180 N. Y. 561; Wood v. Fisk, 215 N. Y. 233.) This rule is now enforced by statute. (Penal Law, section 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. »

: 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.) 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 so-called 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?

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; Tompkins v. Fonda Glove Lining Co., 188 N. Y. 261; Leask v. Hoagland, 205 N. Y. 171, 175; County of Mahaska v. Ingalls, 16 Ia. 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; Chamberlain on Evidence, sec. 1363; Hill v. Manchester & S. W. Co., 2 Nev. & M. 573.) Presumptively both partners had access to such books. (Rowley on Partnership, sec. 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 conceal 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, sec. 1463.) Such circumstances may and must be shown.

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, sec. 94; Cons. Laws, ch. 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 which had been given them. The result of the authorities is that if the agent parts with the property, in a way or for a purpose not authorized, he is liable for a conversion. But if he parts with it in accordance with his authority, although at less price, or if he misapplies the avails, or takes inadequate for sufficient security, he is not hable for the conversion of the property.” (Laverty v. Snethen, 68 N. Y. 522.) Where a sale is authorized by an agent for a specific purpose, as here for the benefit of the plaintiff, the object for which the sale is to be made limits the authority to make it. (Hynes v. Patterson, 95 N. Y. 1; Decker v. Mathews, 12 N. Y. 313; Price v. Keyes, 1 Hun, 177; White v. Wall, 40 Me. 574.) The sale by such an agent for his own benefit is more than a mere disobedience of instructions. (Delmelman v. Brazier, 198 Mass. 458.)

But while we are inclined to think that there was a technical conversion here, it is not necessary to and we do not decide this question. The name given to the proceeding is unimportant. In any event the sale of the bonds with the preconceived idea of making the sale, not for the benefit of the owner but for the benefit of Coster, Knapp & Co., was a breach of faith and amounted to a fraud. The purchaser under such circumstances to be protected must show that he received them in due course. Therefore, in view of the undisputed facts other evidence admitted to show conversion, even if improper, could have had no material bearing on the result. Any exceptions taken to it may be ignored. And further, the various rulings of the court upon this branch of the case in response to requests to charge were correct.

Assuming, therefore, that there was a conversion of these bonds by Coster, Knapp & Co., or that in the sale there was a breach of faith amounting to fraud, the next question to be considered is exceptions touching the question as to whether Grannis & Lawrence became holders in good faith. As to them we start out with the presumption that the brokers having possession of these negotiable instruments had the right to sell them. They had presumably also the right to pledge them for the amount due from the customer, and the pledgee taking them in due course might assume that the pledge was of right. In the absence of knowledge to the contrary or of fácts which required inquiry Grannis & Lawrence might rely upon these presumptions. They deny that they had any such knowledge or that any such facts existed. As to them as bearing on these questions any entries in the books of Coster, Knapp & Co. with which they were not acquainted are incompetent. The question is as to what they knew or should have known when they took the bonds, and here it is immaterial whether the transaction between Grannis & Lawrence and Coster, Knapp & Co. was a loan or a sale. The issue of fact between the former firm and the plaintiff is whether they had conspired generally with Coster, Knapp & Co. to rob the customers of that firm of whom the plaintiff was one, or whether they had knowledge of such facts as should have reasonably caused suspicion when they received the bonds, and required of them proper investigation.

Robert C. Lawrence had been an employee of the firm of Coster, Knapp & Co. from 1894 to July 31, 1905. At first he was a bookkeeper, and later he seems to have been more or less a manager of the business under Mr. Coster. The testimony justifies a finding that prior to his departure he was familiar with the books of the firm. Under these circumstances all of the firm books prior to July 31, 1905, were admitted in evidence against him.

Coster, Knapp & Co. had comparatively few accounts with customers ■— not to exceed fifty. These books showed clearly, or the jury might so find, that in very many, instances —■ so many that it was an ordinary incident of their business — the firm converted the property of their customers to their own use and applied the proceeds for their own purposes and those of their employees, even for the benefit of Lawrence himself. The jury might further find that the defendant knew of this custom. Was his knowledge of what had been going on prior to 1905 such as to place upon him the duty of inquiring when the bonds of the plaintiff were offered to him in 1908? Does it raise a question of his good faith at that time? Clearly as against him, entries with which he was familiar were competent on this question. Again it is a question as to their materiality.

Mere negligence in taking a negotiable instrument is not enough. (Cheever v. Pittsburgh, etc., R. R. Co., 150 N. Y. 59.) There must be bad faith. Actual notice on the part of the transferee of the defect in title is sufficient proof on this point. Less may make a question of fact. Gross carelessness (Canajoharie Nat. Bank v. Diefendorf, 123 N. Y. 191), knowledge of facts that would create suspicion in the mind of a prudent man (Seybel v. Nat. Currency Bank, 54 N. Y. 288), circumstances that otherwise fairly raise the question of his bad faith and create reasonable grounds for suspecting his conduct in the transaction (American Ex. Nat. Bank v. N. Y. Belting, etc., Company, 148 N. Y. 698; Second Nat. Bank v. Weston, 172 N. Y. 250), permit the inference that his conduct was not innocent.

Here, knowledge on the part of the defendant that through a long course of years up to July 31, 1905, Coster, Knapp & Co. had systematically defrauded their customers and that the firm was insolvent in that year was a circumstance which the jury might consider on the question of the good faith of the defendant in 1908. (Loftin v. Hill, 131 N. C. 105; Harrington v. Mining Co., 48 Pac. Rep. 758; Merrill v. Hole, 85 Ia. 66; Bowman v. Metzger, 27 Ore. 23; Ormsbee v. Howe, 54 Vt. 182; Bank v. Goodsell, 107 Mass. 149; Bank v. Sullivan, 63 Minn. 468.) In Goetz v. Bank of Kansas City (119 U. S. 551) evidence was given of the character of the drawer of a bill of exchange as tending to show bad faith on the part of the holder. The Supreme Court said the particular evidence in question was too uncertain, but does not dispute its materiality had it been more definite.

It may be that, standing alone, this evidence might not have raised a question for submission to a jury. (Trust Company v. Wilson, 161 Mass. 80.) But it is a matter which in connection with others the jury may consider. The lapse of time between 1905 and 1908 has to do with the weight of the evidence, not its competency. And there are other circumstances. While Lawrence claims that the bonds were sold to his firm, it certainly was not an ■ ordinary sale. If they were delivered as collateral security for a loan it was not the usual proceeding. Grannis & Lawrence held over $1,500,000 worth of stocks for Coster, Knapp & Co., protected as the jury might find by no sufficient margin. And they might again find that Lawrence knew that Coster, Knapp & Co. were insolvent in 1905. Shortly before this transaction he made them a personal loan of $4,000. This may raise the inference that he realized from their need of so small a sum that their financial condition had not improved. In this state of affairs Grannis & Lawrence received these bonds. At one point Lawrence says it was as collateral for a loan. If so the loan was for their full value. Again he says this: So I arranged that I would buy the bonds at the market price, and if we could get any better price than the price I paid we would settle at one-eighth per cent., so that we would make one-eighth per cent, on the actual final sale of the bonds.” And in spite of his claim that it was a sale, Grannis & Lawrence received $84.16 interest in the transaction. Such is not, or at least the jury might so find, the usual transaction of purchase and sale between brokers. Also suspicion as to the business dealings of Coster, Knapp & Co. might well have been aroused by simultaneous orders to buy and sell the same amounts of the same stock given to Grannis & Lawrence — the transactions appearing on the books of the latter.

As bearing upon the same question of good faith, however, some books and entries thereon of Coster, Knapp & Co., made after July 31, 1905, with which the defendant had no connection and of which he had no knowledge, were admitted in evidence. This was clearly error. But unless the error was substantial we should not reverse on that account. Most of this evidence is not before us. It was stipulated that the exhibits should not be printed and should not be referred to except in so far as they were read into the record. What was read consists in many cases of entries tracing the fate thereafter of accounts between the firm and their customers. The earlier entries, properly received, justified the jury in finding the conversion of the customers’ funds and knowledge' by Lawrence of this habit. What happened later seems to have in no wise strengthened this inference. In others, entries are corroborated by the books of Grannis & Lawrence. There are, however, a series of transactions with which Lawrence is not shown to have any connection. Apparently they were not received, on the issue of good faith but on the issue of conversion by Coster, Knapp & Co. They were not competent for any such purpose, but, as we have indicated, the error was harmless. In the charge the jury were told that evidence of these transactions was received on the claim that Coster, Knapp & Co. operated their whole business as a fraud, and as bearing upon the question whether they converted these particular bonds of the plaintiff. As relating to good faith the court confined himself to a reference to entries made before July 31, 1905, and to transactions on or about April 23, 1908. In so doing he did refer to the amount of the bank balance of Coster, Knapp & Co. on April 9th. Evidence of this fact was incompetent. So far as appears, Lawrence had no direct knowledge of its amount. This error, however, is not of sufficient importance to require a reversal. On April 10th Lawrence advanced them $4,000 and this he would hardly have done in view of the state of the accounts between the two firms, had this balance been of a substantial amount. This is the way the question was finally left to the jury.

These are the principal questions argued by the appellant. The judge made various charges' in response to his requests, too favorable to him, but as to these he may not complain. The judge also erroneously told the jury that if, as was concededly the fact, Coster, Knapp & Co. pledged the bonds for their own debt with the Hanover National Bank, then any authority they might have had to sell the bonds was terminated and the burden of showing good faith was cast upon the defendant. No reference to this was made before us. Nor in view of the undisputed facts in any view showing conversion is the error material.

Nothing we have said modifies or varies the opinion in 236 New York. There, the record was confusing. Here we have one more complete. We have testimony as to the knowledge by Lawrence of the books of Coster, Knapp & Co., kept prior to 1905, especially as to the Marshal account there absent. Nor was the question presented to us whether if a sale was authorized it must be made for the purpose for which the authority was given. We then undertook to express but the general rule — not all possible exceptions. In this record of 1,657 pages one may discover many erroneous rulings. But as it seems to us proof of conversion exists as a matter of law. The jury was fully justified in finding that Lawrence was not a holder in due course. The errors were not of materiality sufficient to affect the result.

The judgment appealed from should be affirmed, with costs.

Cardozo, Pound, McLaughlin and Lehman, JJ., concur; His cock, Ch. J., and Crane, J., dissent on the ground that incompetent evidence was erroneously admitted.

Judgment affirmed. •


source: Caselaw Access Project

author: Lehman, J.

license: Public Domain

text:
    Benjamin R. Kittredge, Respondent, v. Arthur E. Grannis, Appellant, Impleaded with Others.
    Jurisdiction —• practice — action to recover against members" of firm for conversion — jurisdiction of defendant not served may not be obtained by amendment of complaint on trial so as to allege an implied promise and demand judgment on contract —• amendment to complaint does not have effect of causing defendant served to appear as representative of others not served.
    1. Where, in an action to recover against the members of a firm for conversion, the summons and complaint were never served upon appellant, who was a non-resident of the State, but the action proceeded against another partner who had been served and thereafter judgment was entered in favor of plaintiff against both the partner served and appellant, whereupon appellant appeared specially and moved for an order vacating and setting aside so much of the judgment as referred to him, which motion was granted, and thereafter, on appeal by the partner served, this court reversed the judgment and ordered a new trial, jurisdiction to enter judgment against the appellant may not be otained by amendment of the complaint at the new trial so as to allege an implied promise to pay and demand judgment on contract. The amendment may be proper as against the defendant served but the court has no jurisdiction over property of the other defendants named and as to them the amendment is of no effect.
    2. A contention that since the statute (Civ. Pr. Act, § 1197) makes service of the summons upon one defendant notice to all the defendants ■ named in any action wherein the complaint demands judgment for a sum of money against two or more defendants alleged to be jointly indebted upon contract, and does not specify the time when the nature of the action shall be disclosed, it must mean that the moment a joint contract is alleged to be the basis of the claim, the defendant. served appears not only in his own right but as the representative of the defendants named but not served, and that as soon as the court permitted an amendment to the complaint as against the defendant, served he appeared as representative of the others, cannot be sustained. Proceedings by the court without jurisdiction over the person or property of appellant obtained by some form of previous notice could not be binding upon him or his property, and could not result in giving to the court a jurisdiction it did not previously have.

      Kittredge v. Grannis, 215 App. Div. 491, reversed.
    (Argued October 6, 1926;
    decided December 31, 1926.)
    Appeal, by permission, from an order of the Appellate' Division of the Supreme Court in the first judicial department, entered- February 5, 1926, which unanimously affirmed an order of Special Term denying a motion to strike the name of defendant, appellant, from a certain judgment in favor of plaintiff.

      Royal E. T. Riggs and Parker K. Deane for appellant.
    The law of the case at bar applicable to the facts herein was settled on the previous appeal and determines that Grannis, an unserved, non-resident defendant, and the partnership of which he was a member, may not be included in the judgment. (City of Syracuse v. Hogan,
      234 N. Y. 457; Wood v. Dudley, 188 App. Div. 136; Hermes v. Westchester Racing Assn., 213 App. Div. 147; Webber v. Herkimer, etc., R. R. Co., 109 N. Y. 311; La Montague v. Bank of New York, 141 App. Div. 250; 205 N. Y. 621; Peterson v. Alton, 173 App. Div. 883; Springer v. Duveen, 173 App. Div. 962.) Assuming the question to be res nova, there is no warrant in law for entering a judgment against an unserved, non-appearing, nonresident defendant, where the facts do not show any contractual relation between the plaintiff and the defendants, but show merely that the defendants, if liable at all, are liable because of tortious conduct. (Hall v. Lanning, 91 U. S. 160; Stedeker v. Bernard, 102 N. Y. 327; Livingston v. Bishop, 1 Johns. 290; The Beacons-field, 158 U. S. 303; Oakley v. Aspinwall, 4 N. Y. 513; Columbus Trust Co. v. Upper Hudson E. & R. Co., 190 N. Y. Supp. 737; MacDonald v. Mills & Co., Ltd., 199 App. Div. 203; Ayers v. Laurence, 59 N. Y. 192; Burch v. Newbury, 10 N. Y. 374; Gay v. Seibold, 97 N. Y. 472; Delafield v. Brady, 108 N. Y. 524.) This court, by ordering a new trial upon the appeal of the defendant Lawrence from the judgment which at the time of reversal was against him individually, did not resuscitate a possible liability upon the part of Grannis or the firm of Grannis & Lawrence, which liability, so far as this action was concerned, had been adjudicated. (Tanzer v. Breen, 131 App. Div. 654; Schultz v. United States Fidelity & Guaranty Co., 201 N. Y. 230; Newburgh Savings Bank v. Town of Woodbury, 64 App. Div. 305; St. John v. Andrews, 192 N. Y. 382; Taylor v. New York Life Ins. Co., 209 N. Y. 29.)

      George F. Canfield, George Gordon Battle and R. Randolph Hicks for respondent.
    The plaintiff was not precluded from suing in contract at the second trial, since there is no inconsistency between a cause of action in tort for the value of the property converted and a cause of action in contract for the proceeds of the converted property. (Cooper v. Cooper, 147 Mass. 370; Cole v. Reynolds, 18 N. Y. 74; Ross v. Mather, 51 N. Y. 108.) The judgment in this action having been obtained in an action for a' sum of money against two or more defendants alleged and proved to be jointly indebted falls directly within' the letter and clear intent and purpose of section 1932 1 of the Code of Civil Procedure (Civil Practice Act, § 1197). (Corning v. McCullough, 1 N. Y. 47; Andrews v. Artisans’ Bank, 26 N. Y. 298; Harrington v. Bruce, 84 N. Y. 103; Rothschild v. Mack, 115 N. Y. 1; People v. Wood, 121 N. Y. 522; Commercial National Bank v. Taylor, 64 Hun, 499; Siefke v. Minden, 40 Misc. Rep. 631; Harbeck v. Pupin, 123 N. Y. 115; Yerkes v. McFadden, 141 N. Y. 136; Oakley v. Aspinwall, 4 N. Y. 513.) The fact that the case was tried as an action in tort at the first trial, as held by the trial justice, and that a suit was brought in Massachusetts, which was discontinued because the defendant Grannis had no discoverable assets, does not constitute an election precluding the plaintiff from suing in contract at the second trial. (France & Canada S. S. Corp. v. Berwind-White C. M. Co., 229 N. Y. 89; Clark v. Kirby, 243 N. Y. 295; Sommer v. Ehrgott, 193 App. Div. 663; Huffman v. Hughlett, 79 Tenn. [11 Lea] 549; Keener on Quasi-Contracts, 210; Bowen v. Mandeville, 95 N. Y. 237; Edison v. Kalbfleisch Co., 117 App. Div. 842; Metropolitan Life Ins. Co. v. Childs Co., 230 N. Y. 285; Schenck v. State Line Telephone Co., 238 N. Y. 308.) The judgment in favor of the plaintiff at the first trial having been reversed, his rights are to be determined de novo just the same as if no such judgment had been rendered. (Loeb v. Willis, 100 N. Y. 231; State v. Savings Union Bank & Trust Co., 186 Cal. 294; Hallett v. Cordon, 128 Mich. 364.)
   Lehman, J.

The defendant Arthur E. Grannis was, in April, 1908, a member of the firm of Grannis & Lawrence, stockbrokers and members of the Stock Exchange. They received from the firm of Coster, Knapp & Company securities which the plaintiff had deposited with that firm. Grannis & Lawrence sold these securities, and plaintiff has never received the proceeds. The plaintiff claims and alleges a conversion of his securities.

The action was begun in 1914. The defendant Arthur E. Grannis was a non-resident of this State and was-never served with the summons and complaint. The complaint was dismissed as against William C. Langley, upon proof that he was not a general partner in the firm of Grannis & Lawrence. The action proceeded against the defendant Lawrence, who had been served. On December 1st, 1921, the plaintiff recovered a judgment in the sum of $149,232.37. The trial judge held that under the provisions of section 1932 of the Code of Civil Procedure (now section 1197 of the Civil Practice Act) the plaintiff was entitled to take judgment against Grannis as well as Lawrence. Judgment was accordingly entered against both “ as copartners trading under the firm name and style of Grannis & Lawrence.” Thereafter Grannis moved specially for an order vacating and setting aside so much of the judgment as referred to him, “ and amending and modifying the same by striking therefrom the name of the defendant Arthur E. Grannis and the phrase ' copartners trading under the firm name and style of Grannis & Lawrence.’ ” His motion was denied, but the order denying the motion was reversed by the Appellate Division. (200 App. Div. 478; affd., 234 N. Y. 501.)

Subsequently an appeal from the judgment was taken by Robert C. Lawrence and the judgment was reversed by order of this court and a new trial ordered. At the opening of the new trial the plaintiff’s counsel said: I wish to state now that the facts alleged in this action set out not only a tort, but an implied promise to pay, and that we will rely on the implied promise and ask for judgment on contract,” and that plaintiff elected to rely on an implied promise to turn over the proceeds of the sale of his securities. The pleadings did not then contain any allegation of such implied promise, but at the close of the plaintiff’s case he was permitted to amend the pleadings to allege such promise. The plaintiff has again recovered a judgment, and again the judgment so recovered has been entered against both Grannis and Lawrence, copartners trading under the firm name and style of Grannis & Lawrence.” The defendant Grannis has again appeared specially and moved to strike out his name from the judgment. His motion has been denied and the Appellate Division has affirmed the order denying the motion.

Upon the original trial the complaint set forth only an action for conversion. The plaintiff did not waive the tort or allege any contract, express or implied, in fact or law, to pay to the plaintiff the proceeds of his securities, which he claimed the defendant wrongfully converted and sold. When the defendant Grannis appeared specially to object to the jurisdiction of the court to enter judgment under such circumstances against a defendant named but not served, we sustained the defendant’s objection. The right to take judgment, even in form, against a defendant not served is created solely by the statute. The statute creates such right only in an action wherein the complaint demands judgment * * * against two or more defendants alleged to be jointly indebted upon contract.” We decided that the statute has no application in this action, since the complaint did not at that time allege a joint indebtedness upon contract, and the action was tried upon the theory that defendants’ liability arose solely from their conversion of plaintiff’s securities. Question of whether the provision would apply if the plaintiff in this action had pleaded and proven a contract implied in law upon waiver of a tort was not before us. Here the judgment ■against Grannis was entered after such allegation was inserted by amendment to the complaint. Upon the present appeal two questions are before us which have not been considered or determined by the previous appeal: Are the statutory provisions intended to apply to an action where, though the complaint alleges that two or "more defendants are jointly indebted upon contract,” the defendants’ obligation is imposed upon them by law and their alleged promise to pay is only a fiction created to afford additional remedy for wrongful act? If so, did the court by amendment of the complaint at the trial obtain jurisdiction to enter a joint judgment though it had no such jurisdiction in this action when it was •started, or even when the original judgment was reversed and a new trial ordered?

We assume that the proof is sufficient to establish a cause of action for money had and received against the copartners in the firm of Grannis & Lawrence, in accordance with the allegations of the complaint as amended at the trial. - We assume further that the trial judge correctly permitted the plaintiff to amend the complaint at that time, at least as against the defendant Lawrence. Errors in rulings at the trial may be corrected only by appeal, and the defendant Grannis never became, through service of process or general appearance, a party to the action, and is not a party to the appeal taken from the judgment. He may urge want of jurisdiction in the court to enter the judgment of which he complains; he may not urge error by a court which had jurisdiction. We consider upon this appeal not the correctness of the rulings at the trial but only their effect upon the right of the plaintiff to take judgment thereafter, at least in form, against a defendant who was not served and had not appeared.

The amended complaint sets forth a cause of action in assumpsit. The plaintiff seeks to enforce, as remedy for wrong suffered, an obligation imposed by the law. That remedy rests upon the fiction that the one who has wrongfully enriched himself by disposing of the property of another for his own benefit impliedly agrees to pay to the wronged party the proceeds of the property. Judicial and extra-judicial authorities have long recognized that the obligation is imposed by the law and is not created by contract, express or implied; though the law gives remedy by action in assumpsit based upon a fiction of implied contract. (See Keener on Quasi-Contracts, chapters I and III; Anson on Contracts, p. 543; People ex rel. Dusenbury v. Speir, 77 N. Y. 144.) “ A contract is sometimes said to be implied when there is no intention to create a contract, and no agreement of the parties, but the law has imposed an obligation which is enforced as if it were an obligation arising ex contractu. In such a case, there is not a contract, and the obligation arises ex lege.” (Inhabitants of Milford v. Commonwealth, 144 Mass. 64.) Question must naturally at times arise as to how far the courts will carry the fiction of an implied contract beyond the point where it lays the foundation for an action in assumpsit to afford convenient remedy for wrong suffered. Where a statute regulates causes of action based upon contract, definition of the scope of the statute should perhaps be wide enough to include the entire field where at common law remedy for a wrong might be sought by action which even in form was based on contract. In such case the distinction between obligation arising from a true contract, and obligation created by law but enforced by action based upon the fiction of an implied contract, should be drawn only where the courts find that the Legislature intended such distinction. Refinement of distinction may introduce undesirable technicality into the administration of justice not intended by the Legislature; yet the language of the statute may not be stretched beyond the legislative intent and technical meaning read into words which were used in ordinary sense. Many cases may be cited where the word contract ” as used in statutes have been interpreted to include all obligations which at common law could become the subject-matter of an action in assumpsit or ex contractu. Such interpretation is dictated where the purpose of the statute was to base distinction on historic grounds, and on traditional form of action or remedy. (Corning v. McCullough, 1 N. Y. 47; Andrews v. Artisans’ Bank, 26 N. Y. 298; Rothschild v. Mack, 115 N. Y. 1.) Other interpretation has been given to the language of statute or constitution where old fictions or forms of remedy could not logically be the basis for the creation of new rights or remedies. (Louisiana v. Mayor of New Orleans, 109 U. S. 285.) The Legislature here has provided more convenient and more complete remedy in actions against two or more defendants alleged to be jointly indebted upon contract.” It has withheld such remedy in other cases. The courts must find from the language of the statute, read in the light of its purpose, the meaning which the Legislature in this statute intended to give the word contract.”

At common law a plaintiff, in an action against joint debtors, could not recover a judgment against any of them, even to reach their joint property, until they were all, if living, brought into court, or those who could not be brought into court, were outlawed. To avoid the inconvenience, delay and expense of proceeding to outlawry, an easier, more expeditious and cheaper mode of proceeding was provided by our Statute. * * * The objects of this statute were to provide a remedy for the expense and delay of the old proceeding, and to render joint property more accessible for the payment of joint debts.” (Oakley v. Aspinwall, 4 N. Y. 513, 525. See, also, Hall v. Banning, 91 U. S. 160.) We will assume without further consideration that the Legislature might have rendered joint property more accessible for the payment of a joint obligation arising from tort as well as from contract; though liability for tort is several as well as joint. The Legislature has not done so. It has made distinction between joint indebtedness upon contract and other liability. It has limited the right of a plaintiff to take judgment against a defendant who has not been served to cases where otherwise a plaintiff might perhaps be unable to obtain judgment against any wrongdoer. Argument may be made that the distinction is based rather upon the nature of the obligation than upon the nature of the action to enforce that obligation. Here the obligation of the defendants to the plaintiff, as alleged even in the amended complaint, is not in any way created by contract; it arises from the defendants’ conversion of plaintiff’s property. Fiction of contract has been created to afford, additional remedy, but the liability of a tort feasor is not in any other sense an indebtedness upon contract.” That liability may be enforced by several as well as joint judgment. May we read into the statute the fiction of a contract created solely to afford more convenient remedy? If we do so we make the nature 0f the action, rather than the nature of the obligation, the determinative factor in the right of a wronged party to obtain satisfaction out of property in which a party not served has an interest. (See “ Waiver of Tort-Suit in Assumpsit,” by Arthur L. Corbin, 19 Yale Law Review, 226.) If we reach opposite conclusion we may introduce into the law governing remedy refinement of distinction perhaps not intended by the Legislature and which may be difficult to apply in the future. '

We state the question and the doubts that must surround its solution. Divergent views in the court may render any attempt to give authoritative answer to it in this case inexpedient if such answer is not necessary to the determination of the actual dispute between the parties, especially if the trial judge had no jurisdiction to pass upon it. In the original complaint in this action there was no allegation that the defendants were jointly indebted upon any contract, even a fictitious contract or one implied in law. At the original trial no suggestion was made that recovery might be> had upon implied contract after waiver of the tort. Upon the appeal from the order denying the motion of Grannis to strike his name from the original judgment there was conclusive adjudication that the court did not at that time have jurisdiction to enter a judgment against him. Subsequent reversal by this court of the judgment against the defendant Lawrence did not affect the result of that adjudication. Judgment might thereafter be entered even in form against the defendant Grannis, only if by subsequent proceedings the court acquired a jurisdiction which we held it did not originally have. The plaintiff claims that the court acquired such jurisdiction by amendment to the complaint. Even though we should assume that the amended complaint sufficiently alleges that the defendants' were “ jointly indebted upon contract,” question would' still remain whether the court could, by amendment of the complaint at the trial, acquire a jurisdiction it did not originally have.

A personal judgment may be entered against a non-resident defendant only where the defendant has been served with process or has voluntarily appeared. (D’Arcy v. Ketehum, 11 How. [U. S.] 165; Hall v. Lanning, supra; Oakley v. Aspinwall, supra.) In the latter case Mullett, J., in considering the effect of a judgment in form against a defendant not served, stated: “ For myself, I confess I have no inclination to stop the above course of reasoning at any point short of the conclusion, that such judgment is in effect no judgment against the person who was not served with process and did not appear in the suit in which it was rendered.” Undoubtedly such judgment has little if any effect against a party not served; except that it “ may be collected out of the personal property owned by bim jointly with the other defendants.” (Civ. Prac. Act, sec. 1199.) Personal service of process upon Grannis was not required in order to give the court jurisdiction in proper case to enter a judgment in form against him. Nevertheless, a judgment which might be collected out of personal property owned jointly by him with others could of course not be entered unless the court in some way acquired jurisdiction over the property of the joint owners or copartners. We have held that service of process upon one copartner or joint owner is sufficient for that purpose. {Oakley v. Aspinwall, supra.) Notice to one copartner or joint owner of a claim which may be collected out of the joint property undoubtedly may be sufficient to give the court jurisdiction to adjudicate upon such claim. Courts of different jurisdictions have reached that same result, though the theory upon which the decision is rested may vary. (See Jurisdiction over Partnerships, by Magruder & Foster, 37 Harvard Law Review, 793.) Such decisions are too numerous for separate analysis, but it may be said without possibility of contradiction that every case decides or assumes that, the jurisdiction to enter a judgment, which may be collected out of property in which a party not served has an interest, is acquired only where some notice of claim to such judgment has been given to the party interested, either directly or indirectly, or to some other person who may reasonably be expected to represent his interest. Here the court had jurisdiction of the person of defendant Lawrence. In an action “ wherein the complaint demands judgment for a sum of money against two or more defendants alleged to be jointly indebted upon contract,” service of the summons upon Lawrence would have constituted notice which would have required him to defend the interest of all the defendants named in their joint property. Upon the earlier appeal we held that this action was not one in which a judgment which could be collected from joint property might be entered. In view of the allegations of the original complaint the defendant Lawrence appeared at the trial only as an individual in defense of his own interests; the court could not give judgment which would affect the interests in joint property of other defendants not served. Such defendants were not called upon to defend, and the defendant Lawrence could not.represent them, for without their appearance no judgment could be entered in their favor or against them. It is only in an action where a judgment may be entered which would affect the interests of defendants not served in joint property that the court can acquire jurisdiction over such property by notice to one owner. Summons served upon one copartner or joint owner in other actions, even though all the copartners or joint owners are named as party defendants, can hardly be notice that the party served is called upon to defend the interest of all when no judgment may be entered which could affect joint interests; when the party served could not be heard in defense of parties not served, and when he could not in any way bind them. The effect of our earlier decision is that in this action the parties not served were not before the court and the court had acquired no jurisdiction over their property. Otherwise the defendant Grannis could not have been permitted to correct the judgment entered, by motion instead of appeal. The same condition continued until amendment. That amendment may have been proper as against the defendant Lawrence, for the court had jurisdiction of his person. The court had no jurisdiction in that action at that time over the property of the other defendants named in the summons and complaint and as to them the amendment was of no effect.

It is argued that since the statute makes service of the summons upon one defendant notice to all the defendants named in any action wherein the complaint demands judgment for a sum of money against two or more defendants alleged to be jointly indebted upon contract, and does not specify the time when the nature of the action shall be disclosed, it must mean tha£ the moment a joint contract is alleged to be the basis of the claim, the defendant served appears not only in his own right but as the representative of the defendants named but not served, and that as soon as the court permitted an amendment to the complaint as against Lawrence he appeared as representative of the others. We do not think that the statute may be given such effect. To do so we would be compelled to hold that though we had decided upon the previous appeal that in this action the court has no jurisdiction of the person of Grannis or of his interest in joint property, it could acquire such jurisdiction by proceedings of which he had no notice, actual or constructive. It may be that disclosure of the nature of the action may be postponed where the summons is served without a complaint. Perhaps even service of an amended complaint where the plaintiff has the right to serve an amended complaint without leave of the court given after notice to a defendant served, might have the same effect as if the amended complaint had been originally served. ■ In such cases the statute gives the right to postpone disclosure of the nature of the action till complaint is served, or perhaps even to amend it when disclosed. We do not pass upon such situation. Here the original complaint did disclose the nature of the action. That could not be amended without leave of the court, given after notice and opportunity to oppose. No such notice was given to the defendant Grannis or to any person who could represent his interests in the action as then brought, since Lawrence was present at the trial only in defense of his own interests without any notice that he was expected to, or indeed might, represent the interests of Grannis. We hold only that proceedings by the court without jurisdiction over the person or property of Grannis obtained by some form of previous notice could not be binding upon him or his property, and could not result in giving to the court a jurisdiction it did not previously have.

For these reasons the order of the Appellate Division should be reversed, with costs in all courts, and the motion to strike out the name of the defendant Grannis should be granted, with ten dollars costs.

. Hiscock, Ch. J., McLaughlin and Crane, JJ., concur; Cardozo, Pound and Andrews, JJ., dissent.

Ordered accordingly.


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    The People of the State of New York, Respondent, v. P. Albert Stilwell, Appellant.
    Crimes — larceny — extradition— trial — charge — for pur- • pose of extradition accused regarded as “ fugitive ” irrespective of motive for absence from State — flight indicative of consciousness of guilt only when guilty motive exists — erroneous charge that recitals in extradition papers may be considered1 as showing flight and that such flight may be considered upon’11 question whether defendant was conscious of commission of crime — recitals in extradition papers may not be used as evidence of acts alleged to have been committed by accused — proof must be made anew and defendant is entitled to confrontation of witnesses.
    1. Where, upon trial of a defendant charged with larceny, the question was not presented by the record whether his absence from, the State after commission of the alleged crime would, unless explained, justify a finding that he had shown consciousness of guilt, it was. error for the trial judge to charge that extradition papers, coneededly introduced in evidence solely to show the extradition, recite that “ defendant was a fugitive from justice and that the warrant was obtained because he was a fugitive ” after having been charged with crime, that “ the purpose of that testimony was to show that he fled at the time his presence was demanded ” and that such flight is a “ circumstance which may be considered by a jury as bearing upon the question of whether or not he was conscious that he had been guilty of the commission of a crime.” For the purpose of extradition the accused must be regarded as a fugitive from justice if he has departed and remains absent from the State regardless of the motive which dictates departure and absence. Motive for “ flight ” is irrelevant in such ease, and only when guilty motive exists can “ flight ” become indicative of consciousness of guilt.
    2. In any event recitals of Governor or President in extradition papers could not be used against defendant upon his trial as evidence of any act committed by him. The effect of their decision is confined to the executive acts resulting from it and if the question upon which they have passed becomes relevant upon the trial of an indictment, proof must be made anew and the accused is entitled to confrontation of witnesses against him.

      People v. Stilwell, 217 App. Div. 733, reversed.
    (Argued October 21, 1926;
    decided December 31, 1926.)
    Appeal from a judgment of the Appellate Division of the Supreme Court in the first judicial department, entered June 21, 1926, which affirmed a judgment of the Court of General Sessions of the Peace in the county of New York, rendered upon a verdict convicting the defendant of the crime of hypothecation of a customer’s securities in violation of section 956 of the Penal Law.

      Almuth C. Vandiver for appellant.
    The court’s erroneous charge as to flight was highly prejudicial to appellant. (People v. Atwater, 229 N. Y. 303; People v. Lowe, 209 App. Div. 208; Titcomb v. James, 57 Ill. App. 307; Polis v. Heizmann, 276 Penn. St. 315; People v. Swersky, 216 N. Y. 476; People v. Bromwich, 135 App. Div. 67; 200 N. Y. 385; People v. Pettanza, 207 N. Y. 560; People v. Conrow, 200 N. Y. 369; People v. Ogle, 104 N. Y. 511; Ryan v. People, 79 N. Y. 593; People v. Place, 157 N. Y. 584; People v. Taylor, 101 N. Y. 608.)

      Joab PL. Bantam, District Attorney {William B. Moore of counsel), for respondent.
    There was no error in the court’s charge with reference to “ flight.” (Wigmore on Ev. § 276; People v. Ogle, 104 N. Y. 511.)
   Lehman, J.

In May, 1922, the defendant was a partner in the firm of Stilwell, Leffler & Lowe, stockbrokers, who were members of the Consolidated Stock Exchange. He has been convicted under the third count of an indictment which charges that the defendant without having any lien thereon and any special property therein,, feloniously did, for his own benefit, dispose of and consent to the disposition of securities in his possession belonging to a customer of the firm.” That securities belonging to a customer of the firm and in the possession of the brokers were disposed of in violation of section 956 is clear. The defendant is a criminal only if he took part in such disposition or consented or assented to the doing of a felonious act by a partner or employee. Lowe, a partner in the defendant’s firm, was indicted and convicted for the offense now charged against the defendant. That conviction was reversed by the Appellate Division (209 App. Div. 498). On the 11th day of October, 1923, after Lowe was tried and convicted, this defendant was indicted. After the indictment was found the defendant was extradited from Great Britain. At the opening of the trial the defendant’s counsel objected to the jurisdiction of the court to try the defendant on the charge of violation of section 956 of the Penal Law, on the ground that such violation did not constitute an extraditable offense under our treaty with Great Britain. In support of the objection the extradition papers were offered and admitted in evidence. The objection was overruled. After conviction the defendant by writ of habeas corpus challenged on the same ground the right of the State to imprison him under the judgment of conviction. Upon appeal to this court we affirmed the order dismissing the writ. (People ex rel. Stilwell v. Hanley, 240 N. Y. 455.) The defendant now appeals on other grounds from the judgment of conviction.

The evidence produced at the trial is sufficient to permit inference of guilty participation by defendant in a felonious disposition of the securities of the complaining witness by the firm of which the defendant was a member or by one of its copartners. It does not require such inference. Inference of guilt might be more readily drawn if the defendant has shown consciousness of guilt by flight to evade the processes of justice. Error which may have led the jury to find that the defendant has shown consciousness of guilt may not under the circumstances be disregarded.

The defendant was apprehended in Great Britain in November, 1923, more than eighteen months after the alleged crime was committed. The record does not disclose when he went to Great Britain or his reason for going there. Flight from justice may be indicative of consciousness of guilt, but departure from the State is not always dictated by impulse or purpose to escape the consequences of acts done or charges that may be brought. In the absence of explanation, the fact of departure and absence may in the light of surrounding circumstances permit inference of flight and be significant of consciousness of guilt. It has no such significance when the conduct of the accused is equally or more consistent with some other hypothesis. (Wigmore on Evidence [2d edition], section 276; Underhill, Criminal Evidence [3d edition], section 303.) Guilty motive for the departure must be present before the departure can become a relevant factor in the determination of guilt. (Ryan v. People, 79 N. Y. 593; Hickory v. U. S., 160 U. S. 408; People v. Fiorentino, 197 N. Y. 560, 567; State v. Evans, 138 Mo. 116.)

The question of whether in this case the evidence of absence of the defendant a year and a half after the date of the alleged crime would, unless explained, justify a finding that the defendant had shown consciousness of guilt is not presented upon the record. That evidence was produced by the defendant for the purpose of showing that he was extradited from Great Britain and could be tried only on a charge which constituted an extraditable offense according to the treaties between Great Britain and the United States. When the extradition papers were introduced in evidence, the colloquy between the court and counsel on both sides shows that all agreed that the papers were evidence only of extradition. Indeed then the trial judge stated that he would so charge at the appropriate time. The defendant was not called upon to explain the motive for his departure from the jurisdiction so long as he might assume that the departure itself constituted no evidence relevant upon the question of his guilt.

The trial judge thereafter charged the jury that The papers in evidence recite over the warrant of the Governor or Lieutenant Governor of this State that the defendant was a fugitive from justice and that the warrant was obtained because he was a fugitive-from the State of New York after having been charged with this crime, and that by authority existing as the result of that warrant, that extradition warrant procured from the Governor of the State and from the President of the United States and recognized by the Government of Great Britain, he was returned here for trial. The purpose of that testimony was to show that he fled at the time his presence was demanded by the People of the State for the purpose of answering this indictment.” The jury were then told that such flight is a “ circumstance which may be considered by a jury as bearing upon the question of whether or not he was conscious that he had been guilty of the commission of a crime.”

Error in this charge is manifest. The words fugitive from justice ” or fled from the justice of the State ” when used in extradition proceedings have acquired a special meaning. To be a fugitive from justice, in the sense of the act of Congress regulating the subject under consideration, it is not necessary that the party charged should have left the State in which the crime is alleged to have been committed, after an indictment found, or for the purpose of avoiding a prosecution anticipated or begun, but simply that having within a State committed that which by its laws constitutes a crime, when he is sought to be subjected to its criminal process to answer for his offense, he has left its jurisdiction and is found within the territory of another.” (Roberts v. Reilly, 116 U. S. 80.) For the purpose of extradition the accused must be regarded as a fugitive from justice if he has departed and remains absent from the State, regardless of the motive which dictates departure and. absence. The recitals in the extradition papers must be read in connection with the purpose they are intended to serve. The treaty with Great Britain requires the high contracting parties to surrender as a fugitive any person charged with a crime specified in the treaty who shall seek an asylum or shall be found within the territories of the other.” The description of the defendant as a fugitive ” in the papers demanding extradition must be read in accordance with this definition. Motive for flight ” is irrelevant in such case, but only when guilty motive exists can “ flight ” become indicative of consciousness of guilt.

Even were this not true, the recitals of Governor or President could not be used against this defendant upon his trial as evidence of any act committed by the accused. In the performance of their high duties they must on occasion pass upon questions of fact, sometimes after a hearing and sometimes without a hearing accorded to those who may be affected by their decision. The effect of their decision is confined to the executive acts resulting from it. If the question upon which they have passed becomes relevant upon the trial of an indictment, proof must be made anew and the accused is entitled to confrontation of witnesses against him.

For these reasons the judgment of conviction should be reversed and a new trial ordered.

His cock, Ch. J., Cardozo, Pound, McLaughlin, Crane and Andrews, JJ., concur'

Judgment reversed, etc.


text:
    Gustave Neumond et al., as Administrators of the Estate of Karl Neumond, Deceased, Respondents, v. Farmers Feed Company of New York, Appellant.
    Contract — effect of war upon existing contract between belligerents — action to recover on contract between New York corporation and citizens of Germany for term expiring April 16, 1918 — contract not revived at close of war where term of plaintiff’s obligations had expired — inequitable to compel defendant to make stipulated payments — failure to give notice of intention to terminate contract not material where there is complete failure of consideration.
    1. The effect of war upon an existing contract between belligerents will vary with the nature of the obligation that is yet to be fulfilled. If the contract has been fully executed by the enemy before the outbreak of hostilities, if all that is left is a unilateral obligation for the payment of a debt, the obligation is suspended. The citizen must pay his debt when the war is at an end. On the other hand, if' the contract is still executory at the beginning of the war, if there are mutual obligations that are yet to be fulfilled, the contract will be terminated when the essential purpose of the parties would be thwarted by delay, or the business efficacy or value of their bargain materially impaired.
    2. A contract entered into between plaintiffs’ intestate and another, citizens of Germany and copartners, and defendant, a New York corporation, by the terms of which the partnership gave defendant a conditional option and agreed not to buy grains in a designated territory during the term of the contract, which was to expire April 15, 1918, in consideration of which defendant agreed to pay designated amounts semi-annually and not to buy grains in other designated territory during the same term, fell with the outbreak of war between Germany and the United States on April 6, 1917, and was not revived at the close of the war. An action, therefore, to recover payments falling due thereunder cannot be maintained. The obligations of the contract on both sides were suspended during the period of the war. At the close of the war the plaintiffs’ obligations had expired by their terms. Revival of the obligations of the contract could not create new contractual rights. A covenant on the part of the plaintiffs to restrict their business and to sell its good will and trade-mark during a limited period of time might not bo extended without a new contract of the parties. The stipulated consideration, therefore, failed and it would be inequitable to compel defendant to make the agreed payments.
    3. The circumstance that defendant failed to give notice of intention to terminate the obligations of the contract is to be considered in weighing the conflicting equities but is of no substance when suspension of the contractual relations itself results in complete failure of consideration.

      Neumond v. Farmers Feed Co., 215 App. Div. 679, reversed.
    (Argued September 30, 1926;
    decided December 31, 1926.)
    Appeal from a judgment of the Appellate Division of the Supreme Court in the first judicial department, entered November 7, 1925, modifying and affirming as modified a judgment in favor of plaintiff entered upon a verdict directed by the court.

      William S. Cordon and Joseph C. Slaughter for appellant.
    The contract was executory. It expired by its terms April 15, 1918. During the war the firm of plaintiffs’ intestate was under a legal disability to perform the contract. The contract was terminated because it became impossible of performance by operation of law and by act of the government. (U. S. v. Dietrich, 126 Fed. Rep, 671; Heinie v. Meyer, 61 N. Y. 171; Jones v. Judd, 4 N. Y. 411; Allamuilde v. Vacuum Oil Co., 248 U. S. 377; Metropolitan Water Board v. Dick, Kerr & Co., Ltd., App. Cas. [1918] 119; Missouri Pacific R. R. Co. v. Wells-Fargo & Co., 196 N. Y. Supp. 669; Doherty v. Monroe Eckstein Brewing Co., 187 N. Y. Supp. 633; 198 App. Div. 708; Mawhinney v. Milbrook Woolen Mills, 231 N. Y. 290; State Realty Co. v. Greenfield, 110 Misc. Rep. 271; People v. Globe Mutual Life Ins. Co., 91 N. Y. 174; Rose v. Bristol, 174 App. Div. 15.) With the declaration of war and the passage of the Trading with the Enemy Act, consideration for the contract failed, and the defendant was under no further obligation to make payments thereunder. (Crosby v. Wood, 6 N. Y. 369; Pryor v. Flagler, 13 Misc, Rep. 115; Scheppey v. Stevens, 177 Fed. Rep. 484.)

      Edwin A. Jones and L. Eugene Decker for respondents.
    The right to recover the two installments was suspended only and, not being paid to any one else, survived the war with right in plaintiffs to sue. Neither the war nor the Trading with the Enemy Act abrogated or annulled this right or this part or the whole contract. (Sands v. New York Life Ins. Co., 50 N. Y. 626; Cohen v. Mutual Life, 50 N. Y. 610; Buchanan v. Curry, 19 Johns. 137; Kannengiesser v. Israelowitz, 107 Misc. Rep. 349; Erdreich v. Zimmerman, 190 App. Div. 443; Hughes v. Techt, 188 App. Div. 743; Streb v. C. & P. Nat. Bank, 108 Misc. Rep. 368; Mutual Benefit Life Ins. Co. v. Hillyard, 37 N. J. L. 444; Statham v. N. Y. Life Ins. Co., 45 Misc. Rep. 581.)
   Lehman, J.

Karl and Eugen Neumond, German citizens, were copartners buying and selling wet and dried brewers’ grains and malt sprouts in Germany and the United States. They had a trade-mark, Goldnes Kalb,” which had developed an established value. The defendant, Farmers Feed Company of New York, was engaged in buying and selling like products. A contract made on April 15, 1912, to run till April 15, 1915, was afterwards renewed to continue from April 15, 1915, to April 15, 1918. The question to be determined is the effect upon this contract of the coming of war.

The terms of the contract can be briefly stated. The Neumonds gave the defendant an option expiring April 15, 1918, to buy the trade-mark “ Goldnes Kalb ” with the good will attached thereto for $25,000, subject, however, to a condition. The condition was that the defendant was not to exercise the option unless the Neumonds during the life of the contract had discontinued and abandoned the business of trafficking in brewers’ grains. Should the parties of the first part not abandon and discontinue the said business during the said period of three years from date hereof, the party of the second part shall have no right or interest whatsoever in and to the said trade-mark, and the party of the second part shall have no right to exercise the said option, and the said option in such case shall not be available to the said party of the second part.” Accompanying the option were certain restrictions upon intermediate activities. The Neumonds agreed that while the contract was in force, they would not buy grains within a stated territory coextensive with the greater part of New York and certain districts in New Jersey. An exception was to be allowed in respect of the output of one brewery, subject, however, to the duty, if advantage was taken of this exception, to compensate the defendant at a designated rate. In consideration of the option hereby granted to the party of the second part [the defendant] by the parties of the first part and in consideration of the covenants, promises and agreements on the part of the parties of the first part to be performed, the party of the second part promises and agrees to pay to the parties of the first part during the period of three years from the date hereof, at the rate of $2000. per annum payable in equal semiannual installments on the 15th days of October and April during the said period of three years from the date hereof.” The defendant also agreed that during the life of the contract it would not buy grains from any person in the State of Texas or from designated persons in Louisiana, Illinois, Wisconsin, Pennsylvania and Maryland.

War broke out on April 6, 1917. The defendant made the payment of $1,000 which fell due a few days later, April 15, 1917. It gave no notice at that time that it had any desire or intention to treat the option as rescinded. It omitted to make payment of the installments payable thereafter, one on October 15, 1917, and the other on April 15, 1918, but still without notice of an intention to rescind. This action is brought to recover the omitted payments. The defense is that the contract fell with the war.

One of the Neumonds (Eugen) resided in Germany. •The other (Karl) resided in New York, but soon after the outbreak of hostilities was interned by order of the ‘President. Each of them was an enemy ” with whom ■trading was prohibited. (Trading with the Enemy Act of October 6, 1917; 40 Stat. 411, §§ 2, 3.) There can be no doubt that the defendant was relieved of the duty of making the semi-annual payments while hostilities continued. The question is whether the duty was not merely suspended, but discharged. Did the obligation of the contract revive with the coming of peace?

The effect of war upon an existing contract between belligerents will vary with the nature of the obligation that is yet to be fulfilled. If the contract has been fully executed by the enemy before the outbreak of hostilities, if all that is left is a unilateral obligation for the payment of a debt, the obligation is suspended. (Williston on Contracts, § 1748; Birge-Forbes Co. v. Heye, 251 U. S. 317.) The citizen must pay his debt when the war is at an end. On the other hand, if the contract is still executory at the beginning of the war, if there are mutual obligations that are yet to be fulfilled, the contract will be terminated when the essential purpose of the parties would be thwarted by delay, or the business efficacy or value of their bargain materially impaired, (Williston on Contracts, §§ 1749, 1957, 1958, 1978; Distington H. I. Co., Ltd., v. Possehl & Co., 1916, 1 K. B. 811; Met. Water Bd. v. Dick, Kerr & Co., 1917, 2 K. B. 1, 21; affd., 1918 A. C. 119; N. Y. Life Ins. Co. v. Statham, 93 U. S. 24; Sands v. N. Y. Life Ins. Co., 50 N. Y. 626; Cohen v. N. Y. Mut. Life Ins. Co., 50 N. Y. 610.)

Under the provisions of the contract the defendant's only obligation was to pay stipulated sums of money at stipulated times. The plaintiffs’ obligation was to restrict their business in America for a limited period and to sell to the defendant the good will and trade-mark of their business if particular contingency should arise during the same period. The obligations of the contract on both sides were suspended during the period of the war. At the close of the war the plaintiffs’ obligations had expired by their terms. Revival of the obligations of the contract could not create new contractual rights. Covenant on the part of the plaintiffs to restrict their business and to sell its good will and trade-mark during a limited period of time might not be extended without new contract of the parties. May the contractual obligation on the part of the defendant to make the stipulated payments be revived under such circumstances at the close of the war?

It has been said that “ the truth is, that the doctrine of the revival of contracts suspended during the war is one based on considerations of equity and justice, and cannot be invoked to revive a contract which it would be unjust or inequitable to revive.” (N. Y. Life Ins. Co. v. Statham, supra.) The consideration for defendant’s promise to pay is the plaintiffs’ promise to restrict their business and to give an option for the purchase of the good will and trade-marks of the business. It would be inequitable to compel the defendant to make the stipulated payment if suspension of plaintiffs’ contractual obligations resulted in failure of the stipulated consideration.

It is said that the defendant was in no worse position at the end of the war than it would have been if war had caused no suspension of the plaintiffs’ obligations under the contract. The plaintiffs during the continuance of the war might do no business in America, regardless of contractual obligation; they could, therefore, not do business beyond the limits set by the contract. The contingency upon which the option granted to defendant to buy good will and trade-mark never arose; therefore, even if the plaintiffs’ contractual obligation to sell had continued, the defendant could never have availed itself of the option to buy. These circumstances have led the courts below to hold that the defendant must pay the stipulated consideration for the plaintiffs’ contractual obligations though the defendant could not call upon the plaintiffs to perform their obligations.

The value of the plaintiffs’ obligations evaporated at the beginning of the war. Abstention by the plaintiffs from doing business beyond the restrictions imposed by the contract was not the result of their contractual obligations. It was imposed by the sovereign power because as enemy aliens the plaintiffs might do no business in the United States. Though the defendant’s option to purchase the good will and trade-mark of the plaintiffs’ business was only contingent, there was at the beginning of the war a chance that the contingency might arise. The defendant 'agreed to pay a definite sum to acquire frights based on chance. The right so acquired had substance and potential value so long as the contingency might still arise. Suspension of the plaintiffs’ obligations till after they expired effectually terminated the right. Though the contingency had arisen the defendant could not have availed itself of its option. It bought a chance; it did not receive what it bought. The defendant may not be required to pay for a chance it never received;: the plaintiffs are not entitled to receive payment for an , obligation which was suspended during the time it might, have been of value.

Perhaps the defendant would have acted more fairly if it had attempted to give notice of intention to terminate the obligations of the contract. At most, however, that is a circumstance to be considered in weighing conflicting equities. It is a circumstance of no substance when suspension of the contractual obligations itself results in complete failure of consideration and failure to give-such notice could have served little if any purpose. -

The judgments should, therefore, be reversed and thex complaint dismissed, with costs in all courts.

Hiscock, Ch. J., Caedozo, Pound, McLaughlin, Cbane and Andbews, JJ., concur.

Judgments reversed, etc.