text:
    Carlos D. Siegert, Alfredo. C. Siegert and Luis B. C. Siegert, Respondents, v. Cornelius F. Abbott, Appellant, Impleaded with Cornelius W. Abbott.

      Trade mark — necessity of its use by the claima/nt — when an injunction rests on the theory of false representation — query, as to the use of a word formerly designating a city or country — when equity will interfere.

    The filing in the patent office of a device or name as a trade mark for an article, without afterwards using the emblem or name to designate the article, is not sufficient to establish the right of the persons filing such certificate to such trade mark; unless the claimant has actually used the mark or device he cannot restrain others from using a similar one.
    Query, whether a word which formerly designated a city or country can be used as a trade mark.
    A word which truly denotes the nature or the chief ingredient of an article to which it applies may be used by any manufacturer or producer of such article though the word or term has -been previously used by others to designate a like article which they produce.
    When a trade mark acquired by one person is1 used, though innocently, by another, the latter becomes liable for the damage caused, and may be restrained from using the device; but when one seeks to restrain another from using a trade name, or from putting up and selling goods, in any way calculated to induce purchasers to believe that they are buying goods which were manufactured by the complainant, the right of recovery rests upon the theory that a false representation has been made.
    Courts of equity should not be swift or vigilant to protect the manufacturer of a compound advertised and sold as a valuable medicine, which is no't shown to contain a single medical ingredient, or to possess a single merit claimed for it, as against another manufacturer producing and selling a like compound.
    Appeal by the defendant, Cornelius F. Abbott, from a judgment of the Supreme Court in favor of the plaintiffs, entered, on a decision rendered at the New York Special Term, in the office of the clerk of the city and county of New York on the 16th day of December, 1890, as modified by an order made at the. New York Special Term, and entered in said clerk’s office on the 31st day of December, 1891.
    The court found that in the year 1824, Dr. Johannes G. B. Siegert, then a resident of the city of Angostura, Yenezuela, South America, prepared a cordial or liquor, and about 1830 he engaged at that city in the business of manufacturing and selling the preparation as an article of commerce. The evidence shows that from 1830 to 1864 he continued the manufacture and sale of the article as sole proprietor, and that from the year 1864 to 1870, when he died, he was engaged in partnership with his son, Carlos D. Siegert, in the manufacture and sale of the article. After the death of Dr. Siegert, his sons, the present plaintiffs, under the firm name of “ Dr. J. G. B. Siegert & Hijos,” continued the manufacture and sale of the same article.
    In 1846 the name of the city of Angostura was changed by statute to Cuidad Bolivar, since which time the city has been known by the last-mentioned name. This article was manufactured at the city of Angostura or Cuidad Bolivar until 1876, when the Siegerts ceased to manufacture it at that place, and began to manufacture it at Port of Spain, in the island of Trinidad, where it has ever since been manufactured by them. This article has been put up and sold in bottles of two sizes, quarts and pints, on which were pasted printed wrappers or labels. Prior to 1875 the heading of their label was: “ Aromatic Bitters, prepared by Dr. Siegert, at Angostura (now Cuidad Bolivar).”
    From 1875 to 1884 the label was in the following form : “ Aromatic Bitters, or Angostura Bitters, prepared by Dr. Siegert, at Angostura (now Port of Spain, Trinidad).”
    In 1881 the plaintiffs filed a bill in equity in the State of Maryland to restrain C. W. Abbott & Co. from using their trade mark or trade name. They were defeated in this action upon the ground that their label was false in not disclosing the fact that Dr. Siegert was dead and that the article was no longer manufactured at Angostura. (61 Md. 286.) After the entry of this judgment the Siegerts changed the title of their label, and adopted the label now in use which is given below.
    From 1872 to 1875 the firm of G. H. Maynard & Co. manufactured at Baltimore, Md., an article which they sold in the market under the name of “ Angostura Aromatic Bitters.” Cornelius F. Abbott was a member of this firm.
    In 1876 0. "W. Abbott & Co. succeeded to the business of G. II. Maynard & Co., and have continued the manufacture and sale at Baltimore of a preparation designated as “Angostura Aromatic Bitters.”

      John Brooks lemitt, for the appellant.

      Frederick R. Coudert, for the respondents.
   Follett, J.:

To constitute a valid trade mark the designation or term applied to the article must be one which the claimant has the exclusive right to use. (Canal Co. v. Clark, 13 Wall. 311.) It is apparent on principle, and it is well settled by authority, that no one can acquire the exclusive right to use a geographical name or a term which denotes the nature of the article to which it is applied. (Caswell v. Davis, 58 N. Y. 223; Keasbey v. Brooklyn Chemical Works, 50 N. Y. St. Repr. 483; S. C., 21 N. Y. Supp. 696.) The court found that the name Angostura Bitters ” was given by the Siegerts to their mixture because it was manufactured at the city of Angostura. It appears from the plaintiffs’ evidence that the word Angostura ” did not appear on their labels as descriptive of the article until 1875, three years after G. H. Maynard & Co., the defendants’ predecessors, began to use the term “ Angostura Aromatic Bitters ” to designate an article made and sold by them. The plaintiffs’ agent in this country, who verified the complaint, was sworn on the trial and testified that since 1878 the bitters made by the Siegerts have been advertised and sold all over the world under tho name of “ Angostura Bitters.” There is some slight evidence, mqstly hearsay in its character, that prior to 1875 Siegert’s bitters were sometimes known as Angostura Bitters.” This evidence was given by one Wuppermann, who was but fifty-one years of age at the time of the trial, and left Angostura when twelve years of age, and by Paez, who thinks he first saw the article in 1813. TlieSiegert memorial tablet, which the plaintiffs put in evidence, states that “ in 1821 Dr. Siegert prepared the bitters for his own use* and in 1830 a shipment was sent to Trinidad and to England, but that in 1853 their sale did not exceed twenty dozen bottles per annum.” But there is no evidence that the Siegerts applied that name to their compound when put up for sale prior to 1875. It was shown that December 12, 1871, the Siegerts filed in the patent office a so-called trade mark, by which they designated their compound ‘as “ Siegert’s Angostura Bitters,” but there is no evidence that this term was ever applied to the article as sold on the market. The filing in the patent office of a device or name as the trade mark for an article, without afterwards using the emblem or name to denote the article sold, is not sufficient to establish the right of the persons filing such a certificate to such trade mark, and unless the claimant has actually used the mark or device he cannot restrain others from using a similar name.

Subsequent to 1875 their bitters, when placed on the market, were labeled: “ Angostura Bitters, prepared by Dr. Siegert, at Angostura (now Cuidad Bolivar). ”

Though in 1846 Angostura ceased to be the legal name of the city, it has been since so called, and is carried in geographical gazetteers, encyclopaedias and on maps by its former name. (Black’s Atlas, Johnson’s Atlas, Lippincott’s Gaz., Globe Gaz.)

Whether a word which formerly designated a city or country can be used as a trade mark need not now be decided, for the reason that the evidence in this case show's that the defendants, and not the plaintiffs, first used the word “ Angostura ” to designate an article sold on the markets. Besides, one of the defendants testified, and in this he was not contradicted, that “ Angostura bark is the largest ingredient in it (defendants’ mixture), and it is from that which it takes its name.”

The other defendant, when speaking of the receipt from which their article was compounded, testified : “ I remember that Angostura bark was one of the articles mentioned in the receipt; don’t recollect what part of the receipt it appeared in; I know it is probably the biggest thing there.”

The word “ Angostura ” has long been used in medical and scientific works to designate the bark of a South American tree, having well-known medical properties. The following definition of this word is given in “ Murray’s New English Dictionary ”:

“.Angnstura, or Angostura, a town on the Orinoco, now called Ciudad Bolivar. It gives its name to a bark, valuable as a febrifuge and tonic, the produce of Galipea or Cusparía febrífuga.”

“1791. A. Brande (title) Experiments and Observations on the Angustura Bark. 1840. Pereria Mat. Med. 1204. Angostura Bark was first publicly noticed in the London Medical Journal for 1789. 1866. Masters in Treas. Bot. 517. . The means, chemical and otherwise, of distinguishing the true from the false Angostura barks. 1879. Miss Braddon, Vixen, III, 191. Propped up with sherry and Angostura bitters. 1879. Watts’ Diet. Chem., 3d Suppl. 87. Sections of true Angostura bark. 1881. 'Syd. Sec. Lex. Angustura.”

The word is defined in the Century Dictionary as follows: “ Angostura or cusparía bark, the product of a rutaceous shrub, Galvpea Cusparía, of the mountains of Yenezuela, a valuable tonic in dyspepsia, dysentery and chronic diarrhoea.. It was formerly prized as febrifuge, and is now much used in making a kind of bitters. Its use in medicine was discontinued for a time because of the introduction into the markets of a false Angostura bark, obtained from the nux vomica tree, which produced fatal effects.”

A word or term which truly denotes the nature or the chief ingredient of an article to which it is applied may be used by any manufacturer or producer of such article, though the word or term has been previously used by others to designate a like article which they produced. (Caswell v. Davis, 58 N. Y. 223 ; Keasbey v. The Brooklyn Chemical Works, 50 N. Y. St. Repr. 483; S. C., 21 N. Y. Supp. (696.)

We think the evidence in the record and the authorities make it plain that the plaintiffs have failed to establish that they have acquired a valid trade mark by the use which they have made of the word “ Angostura ” standing alone or as combined by them with other words.

Have the defendants, by the mode in which they have put up and described their fluid, deceitfully induced purchasers to believe that they were buying the article manufactured by the plaintiffs instead of the one manufactured by the defendants, or is the defendants’ method of bottling, labeling and describing their article likely, in the future, to induce purchasers, exercising reasonable prudence, to purchase and use the defendants’ mixture upon the belief that it is the plaintiffs’ and so injure the plaintiffs’ business í

When a trade mark acquired by one person is used, though innocently, by another, the latter becomes liable for the damages caused, and may be restrained from using the device. But when one seeks to restrain another from using a trade name, or from putting up and selling goods in any way calculated to induce purchasers to believe that they are buying goods which were manufactured by the complainant, the right of recovery rests upon the theory that a false representation has been made. The rule is well stated in Singer Manufacturing Co. v. Wilson (2 Ch. Div. 434).

"When this action was begun the litigants were selling their compounds in quart and pint Lotties made of glass of much the same shape, though there is a perceptible difference between them. The bottles used by the plaintiffs have the name Dr. J. G. B. Siegert & Hijos ” blown in their shoulders and bottoms. The bottles used by the defendants have the name “ C. W. Abbott & Co., Baltimore, Md.” blown in their shoulders and bottoms. On the bottles used by the plaintiffs there is a label printed in English, French, German and Spanish on which two medallions are represented. The bottles, used by the defendants are wrapped in a label printed in English, French and German, but no medallions are represented. The following are copies of the description in English printed upon the bottles used by the litigants:

Aromatic Bitters or Angostura Bitters

formerly prepared at Angostura, by Doctor Siegert, and now in Port of Spain, Trinidad, by his sons and successors under the old firm or name of

Dr. J. G. B. Siegert & Hijos.

“ These bitters do not only distinguish themselves by their flavour and aromatic odour above all others generally used, but are at the same time an excellent tonic and an efficacious stimulant to incite the appetite. They are principally used thus: Pour half a tablespoonfull in a wineglass, mix it with rum, wine or other licor, and take it before breakfast or dinner or at any other hour of the day if you should feel inclined ; they can likewise be used in sugar and water or syrup and thus composed they have an agreeable taste and are more suitable for ladies and children. They are moreover an excellent remedy for removing indigestion, flatulency, hysterical and hypochondriac attacks, colics, colds, pains of the stomach-and diarrhoea which originate from weakness and relaxation of the digestive organs. In such cases the dose is from half to a tablespoonfull, according to the violence of the attack, and may bo taken, mixed as above mentioned or pure, once or several times per hour or in the course of the day until the disease disappears. Besides their extreme usefulness in the cure of fever and ague, they are also an excellent preservative against the aforesaid maladies; in the former case the dose is from half to one tablespoonfull, either mixed as above, and to be taken two, three, four or more times during the day while the patient is free from fever; in the latter case adapt their principal applications according to the general use of bitters. "When administered to children above two years old, the dose should be from 20 to 60 drops in proportion to the age. In fine, they can be applied with success for the improvement of new rum, by using two tablespoonfull of Bitters to each gallon of rum, and thus they remove its bad smell and acrid taste, giving it immediately an agreeable flavour similar to old rum.

e; Besides the above mentioned advantageous qualities of these Bitters, they are of a most important service as a remedy against the Asiatic Cholera and Cholerin, in every instance where they have been employed with a splendid success. In such cases the dose is of one or two tablespoonfnlls, repeating the same every day three or four times, until a favorable result is obtained, which is very often experienced. For women and children, the doses are to be smaller in proportion to their age and constitution, and to be taken mixed with good wine, brandy, or pure. Their ordinary daily use as Bitters, is generally found to be a preservative against the aforesaid Cholera and Cholerin.”

Angostura Aromatic Bitters,

Prepared by O. W. Abbott & Co., 18 Camden Street, Baltimore, Md.

The utmost care is used in compounding these hitters, both in selecting the materials and in extracting and compounding their medicinal and valuable properties. Certain barks and roots long known and highly prized in the materia medica have been made to yield their most valuable properties, and these have been so combined by the art of the apothecary of ancient times as to produce the best tonic and appetizer known.

“ These bitters have been used for many years throughout this country and elsewhere, both as a medicine and for cocktails and flavouring wines and liquors. For these purposes they stand preeminent, imparting a fine aromatic flavor and removing the unpleasant odor usually'found in new liquors; when used to impart flavor .and color use 6 to 8 drops to a wineglass.

“ This wonderful Tonic is unequalled as a cure for Liver Complaint, Dyspepsia, Fever and Ague, Bilious, Intermittent and Remittent Fevers.

“It is also invaluable in Nervous Weakness of all kinds, and will restore the wasted strength with wonderful permanence.

“ It will be found totally different from any other Bitters, and is so pronounced by the best physicians in this country. It contains no mineral or poisonous qualities, but is composed entirely of vegetable matter. Dose for the above, one part Bitters and two parts water. If taken pure, one-tliird wineglass, three times daily; besides being a preventive of the above-named diseases, it is a sure remedy for Asiatic Cholera and Yellow Fever, which have of late years visited some of our southern cities. In every instance they have been employed with success.

“ Dose — wineglass, four or five times per day until the danger is past. Graduate dose'according to age. For adults a half wineglass full will obviate the effects of Debility and restore the functions in cases of Diarrhoea, Nausea and Seasickness. We have the amplest and most gratifying testimonials to their efficacy and value from the best medical authority in this country and from the proprietors of the first houses throughout the United States where-it has been long and favorably known.”

It'will be observed that in the title of the label used by the defendants are the words: “Angostura Aromatic Bitters, prepared by C. W. Abbott & Co., 18 Camden Street, Baltimore, Md.”

These words are printed from clear type of good size. The title of the plaintiffs’ label contains the following words : “Aromatic Bitters or Angostura Bitters, formerly prepared at Angostura by Doctor Siegert, and now in Port of Spain, Trinidad, by his sons and successors under the old firm or name of Dr. J. G. B. Siegert & Hijos.”

These words are also clearly printed from type of good size. Tt is difficult to see how a purchaser, exercising reasonable prudence, could be led to believe that he was purchasing the article manufactured by the plaintiffs instead of the article manufactured by the defendants. It will be observed that the merits and uses of these mixtures are differently described in the labels. In the defendants’ description it is said* “ These bitters have been used for many years throughout this country and elsewhere both as a medicine and for cocktails and flavoring wines and liquors. For these purposes they stand pre-eminent, imparting a fine aromatic flavor and removing the unpleasant odor usually found in new liquors.”

The plaintiffs in their description do not recommend the articles as specially useful in the manufacture of cocktails, but assert that the article can be applied with success for the improvement of new rum * * * and thus they remove its bad smell and acrid taste,, giving it immediately an agreeable flavoring similar to old rum.” The plaintiffs also assert that their bitters are an excellent remedy for removing indigestion, flatulency, hysterical and hypochondriac attacks, colics, colds, pains of the stomach and diarrhoea, which originate from weakness and relaxation of the digestive-organs,” while the defendants say that this (their) wonderful tonic, is unequalled as a cure for liver complaint, dyspepsia, fever and ague, bilious, intermittent and remittent fevers. It is invaluable in nervous weaknesses of all kinds and will restore the wasted strength with wonderful permanence.” The plaintiffs assert that their bitters are of a most important service as a remedy against Asiatic-cholera and cholerin. In every instance where they have been employed with a splendid success.” The defendants state that their article is a sure remedy for Asiatic Cholera and Yellow Fever. * * * In every instance they have been employed with success.”

Here we find another marked difference in the descriptions of the merits of the two articles, the defendants’ mixture being a cure for yellow fever and the plaintiffs’ not. A person apprehending or suffering from an attack of Asiatic cholera might purchase and use-either or both kinds of bitters and probably with the same result,, while one having or apprehending yellow fever, would, we assume,, surely buy and use defendants’ mixture.

The diseases which these two kinds of wonderful. bitters prevent and cure are not identical, as will be observed by any reader of ordinary intelligence, and we must presume that they are purchased for the uses for which they are so highly recommended by their manufacturers. The plaintiffs, in describing how their articles, should be used, say : They are principally used thus : Pour half a. tablespoonful in a wine glass, mix it with rum, wine or other liquor, and take it before breakfast or dinner, or at any other hour of the■ ■day if you should feel inolmed.” It is also asserted that when used with sugar, water or syrup, their bitters are more suitable for ladies and children.” The defendants do not state that their article is suitable for the use of women and children. The defendants also ..state that “ certain barks and roots, long known and highly prized in the Materia Medica have been made to yield their most valuable properties, and these have been so combined by the art of the •apotheaa/ry of ancient tunes as to produce the best tonic and appetizer known.” No such claim is put forth in behalf of the plaintiffs’ mixture. We think it is apparent that a cursory examination of the bottles and of the claims of the merits of their contents set forth by the litigants on their wrappers shows that the bitters are made by different firms, at places widely separated, and that the evidence is insufficient to sustain a finding that the defendants have simulated the plaintiffs’ goods with the intent to deceive intending purchasers, and that there is no such probability of such purchasers being deceived by the way in which the defendants have prepared and placed their article •on the market as to require the intervention of this court in behalf ■of the plaintiffs. Neither of the litigants gave any evidence tending to show that the bitters prepared by them respectively possessed any •medicinal qualities, or had served any useful purpose except as an .•article for sale. The plaintiffs did not show that Angostura bark or any extract of it entered into the composition of their bitters, nor •did they specify a single ingredient used in their manufacture.

The rights of these plaintiffs were considered in Siegert v. Findlater (7 Ch. Div. 801). It is there held that Siegerts’ mixture was first introduced in England in 1863, since which their popular name has been “ Angostura Bitters.” But that the Siegerts did not adopt •and apply that name to their mixture until after that name had been used by Meinhard in 18Y4, as descriptive of a kind of bitters made by him. It was held that the Siegerts failed to establish a valid trade mark, but it was also held that the mode in which the defendant put up and described his mixture was calculated to and was intended by the defendant as a deception. In that case the defendant was restrained “ from using the words £ Angostura Bitters ’ or the word Angostura,’ on any bitters or other fluids contained in bottles, not made by the plaintiffs, so as to induce the belief that such bitters or fluids are made by the plaintiffs, and further from selling or offering for sale any bitters or other fluids in the bottles, in the wrappers, and in the general form in which the defendants were selling the; bitters called by them £ Angostura Bitters ’ at the commencement of this action, or in any other wrappers or form contrived or designed, to represent and induce the belief that the bitters or fluids sold by the defendants, and not made by the plaintiffs, are the goods of the-, plaintiffs.”

In the case at bar the judgment goes much further and restrains, the defendants from using the words ££ Angostura Bitters ” or the word Angostura,” or any imitation of such word, on any bitters of cordials made by or for the defendants. It is clearly shown, we think, that the plaintiffs have no trade mark in these words nor any right to their exclusive use, and the only possible relief that the plaintiffs could be entitled to under the most favorable view of their own evidence would be a judgment restraining the defendants from using those words in such a way as to lead purchasers to believe that, they were buying the plaintiffs’ bitters when, in fact, they were buying the defendants’.

If these bitters have no medicinal properties, and are only useful for flavoring wines and liquors, they should be so advertised and sold, and not advertised and sold as having medicinal merits unless they possess such merits, otherwise courts of equity will not look with favor on the application of the manufacturers for protection against rivals engaged in the same pursuit.

In Fowle v. Spear (7 Penn. L. J. 176; Cox T. M. Cases [2d ed.], 90), an injunction to restrain the use of labels and bottles similar to. those used by the plaintiff was refused on the ground that the plaintiff had misrepresented, by his labels, the qualities and properties of' his medicine. (Browne Tr. M. § 351. See, also, Leather Co. v. American Leather Cloth Co., 4 De G., J. & S. 137; S. C. affd., 11 H. L. Cas. 522; Connell v. Reed, 128 Mass. 477; Manhattan Medicine Co. v. Wood, 108 U. S. 218; Fetridge v. Wells, 4 Abb. Pr. 144; Dale v. Smithson, 12 id. 237; Big. Law of Fraud, 560.)

"We do not think courts of equity should be swift or vigilant to; protect the manufacturer of a compound advertised and sold as a valuable medicine, which is not shown to contain a single medical ingredient, or to possess a single merit claimed for it as against another manufacturer producing and selling a like compound.

The judgment should be reversed and a new trial granted, with costs to the appellant to abide the event.

O’Brien and Parker, JJ., concurred.

Judgment reversed and new trial granted, with costs to the appellant to abide event.

       Sic.


source: Caselaw Access Project

author: Eoluett, J.:

license: Public Domain

text:
    Osgood Carleton and George B. Moffatt, Respondents, v. Lombard, Ayres & Co., Appellant.

      Implied warranty — contract made subject to the rules of a produce exchange — when a right of action for defects in goods exists after acceptance thereof — evidence.
    Where an article is sold under a contract which specifies the qualities which it shall possess, the law will not, except in special cases, imply a warranty that the article has other qualities.
    Where a contract was made “subject to the rules of the New York Produce Exchange,” of which association the contracting- parties were members, such rules must be taken as a part of the contract and be given the same effect as though incorporated therein.
    When a manufacturer enters into a contract to make and deliver a specified article which is to be identified and inspected by the vendee, with the right of rejection in case it does not conform to the contract, a right of action for 'defects in the article does not arise unless the defects could not have been discovered by the ordinary tests known to the trade, or unless there was a warranty or stipulation in regard to the quality of the article which it was manifestly intended by the parties should survive their acceptance.
    In an action brought for the recovery of damages for an alleged breach of contract to deliver a certain article of a specified standard of excellence, it was claimed, on the part of the plaintiffs, that there were latent defects in the article delivered, causing' its damage, and evidence was given by them tending to show that the defects complained of could not be easily ascertained at the time when, and the place where, the article was delivered to them. The defendant offered to show that such defects could have been ascertained at the time and place of delivery by well-known tests.
    The offer was excluded and an exception was taken.

      Held, that such exclusion was improper; that neither express nor implied warranties cover known defects.
    On the trial of the action the judgment roll in another action,- brought against the plaintiffs in the present action by parties who had purchased the article from them, to recover damages for a breach of warranty thereof, in which the court ruled that the only question for determination was whether the article was, at a certain time, merchantable, of good quality and in g lod oondition, was received in evidence.

      Held, that such admission was improper ; that the judgment roll was not competent evidence in this action, in which the same issues were not involved as in the former suit.
    Appeal by the defendant, Lombard, Ayres & Co., from a judgment of tbe Supreme Court, entered in the office of the clerk of the city and county of New York on the 13th day of January, 1893, upon a verdict for the plaintiffs directed by the court after a trial at the New York Circuit.
    This action was brought for the recovery of damages for an alleged breach of a contract to deliver 55,000 cases of refined petroleum of a specified standard of excellence.
    The plaintiffs are partners under the firm name of Carleton & Moffatt, and the defendant is a domestic corporation engaged in. refining petroleum for export, having its refinery at Bayonne in the State of New Jersey. On the 10th day of January, 1887, the parties entered into a contract, of which the following is a copy :
    “ Case Oil Contract.
    “ New York, Ja/nua/ry 10th, 1887.

      “ Sold for account of Mess. Lombard, Ayres & Co.
    “ To Mess. Carleton & Moffatt.
    “Fifty-five thousand (55,000) cases ten (10) per cent more or less, each case packed with two of their patent cans with low screw tops or nozzles and brass labels containing five (5) gallons each of refined petroleum of their ‘ Stella’ brand, color standard white or better, fire test 76 degrees Abel or upward, at eight and one-half (8£) cents per gallon, cash on delivery. To be delivered in yard free of expense to vessel to be ready not earlier than the twenty-fifth (25th) of January, 1887, nor later than the tenth (10th) of February, 1887, with twenty-five (25) days to load. ”
    [Marginal Note. — “No responsibility taken unless by special agreement.”
    “ Brass labels one-half ($) of one (1) cent each.
    “ All drawbacks to accrue to sellers.

      “ Buyers to complete bond and furnish landing certificates. In case of damage by fire or other accident, by reason of which sellers are unable to deliver the goods in the time specified in this contract, a notice from sellers that they intend to repair their works shall make it the duty of the buyers to elect within 96 hours whether they will allow an extension of time, sellers paying any demurrage that may accrue, or accept other brands.
    “ Subject to the rules of the New York Produce Exchange.
    “BABCOCK & COX, .

      “Brokers.

      “ Brokerage of one per cent by seller.”
    Indorsed:
    “ Accepted, LOMBARD, AYRES & CO.”
    The marginal note,“No responsibility taken unless by special agreement,” refers to the brokers’ liability.
    The plaintiffs and the president and the vice-president of the defendant are members of the New York Produce Exchange. Both parties to the contract understood that the oil was to be shipped to Calcutta by a sailing vessel.
    The following are the rules of the New York Produce Exchange:
    “ Rule 3. It shall be the duty of the committee on petroleum to approve and license, as inspectors for the various branches of the petroleum business, such persons, members of the New York Produce Exchange, as upon examination are found duly qualified. The committee shall also have power to revoke such license for cause.”
    “ Rule l(k Refined petroleum shall be standard white or better, with a burning test of 110 degrees Fahrenheit or upward, and of a specific gravity not below 44 degrees Beaumé United States dispensatory standard.”
    “ Rule 46. "When goods are delivered to vessel by buyer’s orders the acceptance of them by buyer’s inspector shall be an acknowledgment that the-goods are in accordance with the contract.”
    “Rule 59. Buyers shall have the right of naming their inspector, but shall do so at least five days before the maturity of the contract; failing in which the sellers may employ, at buyer’s expense, any regular petroleum inspector approved by the committee on petroleum, and his certificate that the oil is in conformity with the contract shall be accepted. On a contract for prompt delivery, or where no notice is required, buyers shall name their inspector when contract is executed; otherwise sellers may appoint the inspector at buyer’s expense.”
    “ Rule 66. All transactions in petroleum and its products among members of the New York Produce Exchange shall be governed by the above rules, but nothing therein contained shall be construed as interfering in any way with the rights of members to make such special contracts or conditions as they may desire.”
    “ I. H. Archer & Co., appointed by the petroleum committee of the N. Y. Produce Exchange, inspectors of the quality, cooperage and weights of petroleum and its products.”
    On the 10th of January, 1887, Carleton & Molfatt contracted to sell the cargo of oil to Graham & Co., a firm engaged in business at Calcutta, India.
    I. IT. Archer & Co. were inspectors of petroleum, appointed by the New York Produce Exchange, whom the plaintiffs selected to inspect the oil to be delivered. Before March 1, 1887, the oil was delivered at the Seaboard yard, at which the Corby was loaded, and inspected by I. H. Archer & Co., who gave the following certificate:
    “New York, Ma,rch 1st, 1887.
    “We hereby certify that we have inspected the contents, fifty-three thousand two hundred and ninety-five (53,295) cases Refined Penna. Petroleum, shijrped by Messrs. Carleton & Moffatt, on board the Br. Ship Corby, and report the same as follows :
    “ Brand: Stella. Mark (G)
    “ Nos. 86 c 133.
    “ in lots of 1000.
    “ Color : Standard White or better.
    “Abel test: Seventy-six (76) degrees Fahr. & upwards.
    “ Gravity: Forty-four and a quarter to forty-six (44J-46) degrees B.
    “I. H. ARCHER & CO.^
    “ Inspectors.”
    The Corby, on which the oil was shipped, sailed from the port of New York early in March ,1887, and arrived at Calcutta June eighth of the same year. Upon the arrival of the vessel in Calcutta, many of the tin cans which held the oil were found so corroded that their contents had leaked into the hold of the vessel, greatly damaging the entire shipment.
    In July, 1888, Graham & Go. brought an action in the Supreme Court of this State against Carleton & Moffatt, for the recovery of the damages, alleging that at the time of the sale the vendors “ represented and warranted to the plaintiffs (Graham & Co.) that the said cans contained refined petroleum of the Stella brand, of good and merchantable equality; that the same had been properly refined and was free from any water, acid or other vicious substance which could injure the same or render the same unmerchantable; that the same was contained in good and strong tin cans of suitable material, properly inclosed in cases also of suitable material, and that the said cases, cans and contents were in a condition to be properly transported to Calcutta by the said sailing vessel, and to be there delivered in good order, and condition.”
    This allegation was denied by Carleton & Moffatt. Upon the trial of this issue a verdict was rendered against Carleton & Moffatt for $44,612.48, upon which a judgment was entered for $48,098.75, damages and cost.
    In March, 1891, this action was begun to recover the amount which the plaintiffs in this action, the' defendants in the former one, had been compelled to pay, including the costs and expenses incurred in the defense. Lombard, Ayres & Co. received notice of the action against Carleton & Moffatt and assisted in the defense thereof.

      Benjamin F. Tracy, for the appellant.

      EseTc, Goioen, for the respondents.
   Eoluett, J.:

The plaintiffs concede that the oil delivered by the defendants was of the kind and quality called for by the written contract, and possessed the qualities and sustained the tests required thereby, but they insist that there were latent defects in the article, causing the damages recovered by Graham & Co. They assert that the law implies a warranty by manufacturers that their products are free from latent defects caused by imperfect or unskillful workmanship, which is collateral to the contract of sale. Originally the word “ warranty,” as used in connection with sales, was applied solely to contracts for the sale of existing articles, identified at the time of sale, the title to which passes under the contract, and the obligation arising from a warranty was held to be a purely collateral undertaking which survived the delivery of and the payment for the article sold.

The nature of a warranty is clearly stated in 2 Smith’s Leading Cases (6th ed.), 2'7: A warranty, properly so called, can only exist where the subject-matter of the sale is ascertained and existing, so as to be capable of being inspected at the time of the contract, and is collateral engagement that the specific thing so sold possesses certain qualities, but the property passing by the contract of sale, a breach of the warranty cannot entitle the vendee to rescind the contract and revest the property in the vendor without 1ns consent. * * * But where the subject-matter of the sale is not in existence, or not ascertained at the time of the contract, an engagement that it shall, when existing or ascertained, possess certain qualities, is not a mere warranty, but a condition, the performance of which is precedent to any obligation upon the vendee under the contract, because the existence of those qualities, being part of the description of the thing sold, becomes essential to its identity, and the vendee cannot be obliged to receive and pay for a thing different from that for which he contracted.”

But in the modern cases the word has been used as synonymous with stipulations in executory contracts prescribing the qualities of the goods to be sold, the title to which is to be vested in the vendee at a future day. In the case of executed sales the warranty is a collateral undertaking, but in the case of executory sales the agreement to deliver articles of a specified standard of excellence is not a collateral undertaking, but is part of the contract to sell and deliver. Warranties are express or implied. An express -warranty arises when the vendor makes an affirmation in respect to the quality of ■the goods sold. An implied warranty arises: (1) When an examination of the goods is impracticable a warranty will be implied that they are merchantable; (2) on an executory contract for the sale of goods to be manufactured or procured for a particular purpose or use a warranty will be implied that they are fitted for such purpose or use; (3) a warranty is implied that there are no latent defects in case tlie seller, being a manufacturer or producer, might have provided against the existence of the defects. There are other cases in which warranties are implied, but they are not germane to the case at bar.

The contract is full and explicit. By it the vendors were bound to deliver a specified quantity and kind of oil having prescribed qualities, and it makes no difference in this case whether the stipulations relating to quality be called warranties or conditions for they have all been performed by the defendant. This is conceded. The plaintiffs seek to recover, not for a breach of any of the stipulations in the written contract, but for a breach of a condition or warranty that the oil was properly manufactured, merchantable, free from defects and in condition to be transported to Calcutta by a sailing vessel and there delivered in good order and condition, which the plaintiffs assert by implication of law is a part of the contract. It is well settled that when an article is .sold under a contract which specifies the qualities which it shall possess — no matter whether the language he a condition or a warranty — that the law will not, except in special cases, imply a warranty or condition that the article has other qualities. ’ A warranty or condition in a contract of sale that the article sold has certain qualities excludes the implication of a warranty or condition that it possesses other qualities. (Baldwin v. Van Deusen, 37 N. Y. 487; Parkinson v. Lee, 2 East, 312; Budd v. Fairmaner, 8 Bing. 48-52; Dickson v. Zizinia, 10 C. B. 602; Deming v. Foster, 42 N. H. 165 ; Whitmore v. South Boston Iron Co., 84 Mass. [2 Allen] 52.) The reasons for the rule are so well stated in the cases cited and are so obvious that a re-statement of them is not required.

A warranty of soundness does not exclude an implication that the vendor warranted his title, nor is the rule applicable to cases of fraud. The discussion of this case might well be ended at this point, but there are rulings excepted to which are fatal to the judgment. This contract was hy its terms subject to the rules of the New York Produce Exchange,” of which association the contracting parties are members. These rules must be taken as part of the contract and given the same effect as though incorporated therein.

Rule 46 provides: “ When goods are delivered to vessel hy buyer’s orders the acceptance of them by buyer’s inspector shall be an acknowledgment that the goods are in accordance with the contract.”

Rule 59, quoted in the statement of facts, provides that the certificate of the inspector “ that the oil is in conformity with the contract shall be accepted.” In this case the goods were delivered to the Corby by the buyer’s orders and they were accepted by the buyer’s inspector, which is an acknowledgment that the goods were in accordance with the contract. The inspection and acceptance must be deemed to be an assent that the goods comply with all of the conditions of the contract, whether those conditions are expressed or implied. When a manufacturer enters into a contract to make and deliver specified articles, which are to be identified and inspected by the vendee, with the right of rejection in case they do not conform to the contract, a right of action for defects in the article does not arise unless the defects could not have been discovered by the ordinary tests known to the trade, or unless there is a warranty or stipulation in regard to the quality which is manifestly intended by the parties should survive acceptance. (Studer v. Bleistein, 115 N. Y. 316.)

And so, if it be assumed that the law will imply a condition or warranty that the oil was merchantable, free from defects and in a condition to bear transportation to Calcutta without injury, the right of action for such defects would not survive inspection and acceptance in case the defects were discoverable by ordinary tests known to and used by those dealing in such commodities, for there is no evidence in the case which would justify the inference that the warranty or condition which we are asked to imply was intended to survive acceptance after inspection.

The evidence given by the plaintiff tended to show that the defects complained of could not have been easily ascertained at the time when, and at the place where, the oil was delivered to them. The defendant offered to show that these defects could have been ascertained at the time and place of delivery by well-known tests. This offer was excluded and an exception taken: Neither express nor implied warranties cover known defects. When a manufactured article is tendered in performance of a contract of sale under which it is the duty of the vendee to inspect and accept or reject, the vendor does not remain liable for patent defects or defects discoverable by the application of known tests, unless he so agrees. (Monitor Milk Pan Co. v. Remington, 41 Hun, 218 ; Studer v. Bleistein, 48 id. 577; affd., 115 N. Y. 316.)

The dissenting opinion in the Monitor Milk Pom case was placed on the ground that it was conceded that when the pans were inspected and delivered, the parties to the contract knew of no test by which the defect subsequently developed by actual use could have been discovered. In that case the defendant’s expert testified that he did not know of any test which would have determined whether the enamelling was well done or not. In that case the referee found that the test by lactic acid was unknown to both parties at the time of inspection, was not then in practical use, and that there was no evidence that it ivas then known except to scientists.

The judgment roll in the action brought by Graham & Go. was neither proof nor evidence on this question because no such issue was involved in that action. The oil was not sold to Graham & Co. subject to the right and duty on their part to inspect or reject, nor did they purchase it subject to the rules of the New York Produce Exchange. The plaintiffs in this action allege in their complaint that it was ruled on the trial between Graham & Co. and Oarleton & Moffatt “ that the only question for determination in said case was whether or not said oil, at the time of its shipment on board the Corby at Bayonne, was merchantable oil, of good quality and in good condition.” In the face of this allegation it cannot be successfully contended that the former judgment was evidence bearing upon the question whether the defects in the oil could have been discovered by inspection.

The view we • have taken of this case renders it unnecessary for us to determine whether rule 46 which was made a part of the contract is an arbitration clause.

The judgment should be reversed and a new trial granted, with costs to the appellant to abide the event.

Yan Brunt, P. J., and Barrett, J., concurred.

Judgment reversed and new trial ordered, with costs to the appellant to abide the event.


author: Parker, J.: O’Brien, J.:

text:
    George F. Vietor et al., Respondents, v. David Levy et al., Appellants.

      Jfacts authorizing the setting aside of judgments and transfers of accounts as being fraudulent as to creditors — judgment by confession, with good consideration, set aside as being part of a fraudulent scheme — an assignee of accounts chargeable with the value thereof.

    A debtor may confess judgment in favor of his more highly favored creditors in an amount sufficient to exhaust his entire estate.
    What evidence will justify the trial judge in finding a transaction to have been a fraudulent scheme, entered into and carried out by the several parties thereto, with intent to hinder, delay, cheat and defraud creditors, and in setting aside judgments, transfers of accounts, and all subsequent proceedings had under the judgments, including the appointment of a receiver in proceedings supplemental to execution, considered.
    Though some of the judgments by confession, recovered against an insolvent firm, may not have been attacked so as to permit a finding that they were without consideration, yet, if the object sought to be secured by a succession of steps, of which the confession of such judgments was one, was to cheat and defraud the creditors of the debtor firm, it matters not whether the firm was indebted in the sums confessed or not.
    Creditors of an insolvent firm who have obtained by fraud, transfers to themselves of accounts in its favor, and have assigned the same, are properly charged with the value of such accounts, although the consideration of the assignment thereof by such creditors was for a much smaller sum.
    Appeal by the defendants, David Levy and others, composing the firm of Cohen Bros. & Co., and by Morris Batt, from a judgment of the Supreme Court in favor of the plaintiffs, rendered at the New York Special Term and entered in the office of the clerk of the city and county of New York on the 15th day of November, 1892, appointing a receiver, and charging the defendants, other than David Levy, with various amounts aggregating $32,315.82, with notice of an intention on the part of the defendants to bring up for review upon such appeal the interlocutory judgment rendered at the New York Special Term and entered in the office of the said clerk of the city and county of New York on the 13th day of July, 1892.
    The trial judge found as a fact that the object and purpose of said proceeding on the part of said Isaac Levy and the said debtors was to perfect, and carry out, and complete, the fraudulent scheme hereinbefore referred to, and in order to obstruct and prevent the creditors of said D. Levy & Sons from' reaching the assets of said firm which were lawfully applicable to the payment of their debts, and said judgments and all the proceedings thereafter, including the appointment of said receiver, were perfected, carried out and connived at for the purpose of cheating and defrauding the creditors of the defendants composing the firm of D. Levy & Sons, and for no other purpose.
    And as conclusions of law, among others:

      First. That each of said judgments and executions in favor of Matilda Levy, the defendants composing the firm of Cohen Bros. & Co., Louis M. Levy, Morris Batt, Rachael Levy and Isaac Levy, mentioned in the foregoing findings, were and are void as against the plaintiffs, as having been made with intent to hinder, delay, cheat and defraud the creditors of said D. Levy & Sons, and should be so adjudged.

      Second. That the proceedings subsequent to execution on the judgment of Isaac Levy, under and by which Morris J. Friedlander was appointed receiver on the 6th of November, 1890, should also be adjudged fraudulent and void as against the plaintiffs, and said order appointing said Morris J. Friedlander be set aside as far as it affects the plaintiffs herein.

      Third. That the transfer of accounts made by the defendants composing the firm of D. Levy & Sons to Matilda Levy, dated the 20th of September, 1890, and the transfer by her of the same accounts to Louis M. Levy, dated October 18, 1890 ; also the transfer made by the defendants composing the firm of D. Levy & Sons to the defendants composing the firm of Cohen Bros. & Co., dated September 20,1890, and the transfer by Cohen Bros. & Co. of the same accounts to Louis M. Levy, dated October 8, 1890, and the transfer of accounts made by the defendants composing the firm of D. Levy & Sons to Isaac Levy, dated September 26, 1890, and the transfer by Isaac Levy of the same accounts to Louis M. Levy, dated October 20,1890, and each of them, was and is fraudulent and void as against the plaintiffs herein, as having been made with intent to hinder, delay, cheat and defraud the creditors of D. Levy & Sons, including these plaintiffs, and each of said transfers should be adjudged fraudulent and void as aforesaid, and should be set aside.

      Fourth. That a receiver should be appointed herein of the property taken under and by virtue of the judgments and executions aforesaid, as well as of the accounts and proceeds of said accounts transferred as hereinbefore set forth.

      James M. Hunt, for the appellants.

      Blumenstiel & Ilirsoh, for the respondents.
   Parker, J.:

The statute prevents a debtor by a general assignment from devoting more than one-third in value of his estate to the payment of preferred creditors. (Chap. 503, Laws 1887.) But he may accomplish that result by omitting to make a general assignment, and, instead, confessing judgment to the more highly favored creditors in an amount sufficient to exhaust his entire estate. (Manning v. Beck, 129 N. Y. 1.)

That method of securing creditors, whom the firm of D. Levy & Sons regarded as having stronger equities appealing for protection than the others (and who happened to be relatives) was doubtless suggested by their legal adviser. Had they honestly devoted their property by this method to the payment of their creditor relatives, both the method and the result would have been unassailable.

But the thought is suggested from the reading of the record, that when the firm found how easily they could prevent any one of their creditors from receiving a single dollar on account of liis demand, the idea was born of so using the power to pay, or not to pay, as they should elect, as to secure a substantial benefit and advantage to themselves.

The transaction of which complaint is made was intended by the insolvent firm to appear to the public and their inquisitive merchandise creditors as follows: Having been sued by an unrelenting creditor named Morris Batt, the firm exerted every effort to avoid failure, but success had not yet crowned tlieir efforts when the day arrived on which Batt could and did enter judgment.

Failure then being certain, judgments were thereupon confessed to other creditors, who immediately issued executions and caused a levy to be made upon the property and assets of the firm.

Thereafter a public sale was had, at which the various judgment creditors bought in the property for an amount less than the aggregate of their judgments; the purchasers then sold the property to Louis M. Levy, who thereafter continued the business in his own name, employing as clerks the members of the late firm other than the senior member.

This transaction, which upon a superficial examination would appear to be straightforward and legal, the learned trial judge has found to be a fraudulent scheme, entered into and carried out by the several defendants, with the intent to hinder, delay, cheat and defraud the creditors of D. Levy & Sons. And by the decree the judgments, as well as certain transfers of accounts made six days before the entry of the judgments, and all’subsequent proceedings had under the judgments, including the appointment of Isaac Levy as receiver in proceedings supplemental to execution, are set aside. A personal judgment was also rendered against the several parties ■who obtained a benefit under the proceedings in the several amounts received by them.

The statute which the judgment under review adjudges the defendants violated applies as well to a sale under an execution as to a transfer direct from the debtor. The judgment, execution and sale by the sheriff constitute the conveyance by which the title is transferred. (Stimson v. Wrigley, 86 N. Y. 332.)

'Whether the conclusion reached by the trial court, that the proceedings taken, by which the property of the firm was transferred to Louis M. Levy, was in contravention of the statute, is well founded will now be considered.

In examining and weighing the evidence which induced the judgment, we shall have in mind that he who alleges fraud must prove it; that the burden rests upon him to show affirmatively the facts and circumstances necessarily tending to establish the probability of guilt. And at the same time remember that those who attempt to perpetrate frauds take all the precautions that occur to them to make the transactions appear honest, and rarely confess their misconduct, whether under oath or otherwise. That in such cases proof of the fraud must be established, if at all, by facts and circumstances which deny the protestations of commercial virtue, which nearly always fall from the lips of those who try to outwit the law.

Examining more fully tlie details of the several transactions which we have alluded to in the manner in which it is natural to presume the defendants thought it would appear to inquirers, we find in the first place that Morris Batt, the apparently diligent creditor who. pressed his claim to judgment, was a son-in-law of the senior member of the firm of “ D. Levy & Sons,” and a brother-in-law of the. other members. That his conduct was not offensive to the firm is manifested by the fact that on the same day on which he took judgment by default against them, they also confessed judgment for another sum in his favor.

It likewise appears that Batt had no desire to be unreasonable with his relatives, for after the sale he not only turned over the goods which were purchased for him to another brother-in-law, “ Louis M. Levy,” but he also turned over to him the money which he alleges he received in satisfaction of his judgment. Six days, prior to the entry of the judgments, the firm transferred certain book accounts to “Matilda Levy,” others to “Isaac Levy,” still others to “ Cohen Brothers & Co.,” amounting in all to over $35,000. On the 26th of September, 1890, judgments were entered against them in favor of “ Morris Batt,” “ Louis M. Levy,” “ Cohen Brothers & Co.,” “ Matilda Levy ” and “ Rachel Levy,” aggregating $22,000. The firm was composed of “ David Levy ” and his three sons, Michael D., Henry J. and Morris M.

The relationship existing between the several persons to whom accounts were assigned, or judgments confessed, and one or more members of the insolvent firm, is as follows :

Matilda Levy is the wife of Michael D.; Rachel Levy is the wife of David and the mother of the other members of the firm; Isaac Levy is a brother of David; Morris Batt is a son-in-law, while the members of “ Cohen Brothers & Co.” are brothers of Matilda Levy. The fact that the parties associated with the firm of D. Levy &■ Sons in the alleged fraud are related to them, is not, of course, in itself proof of fraud, but it is a circumstance which may well be considered in connection with the other facts, to which allusion will be made.

Before proceeding with the examination of the steps taken subsequent to the confession of the judgments, we will consider briefly the claim of Matilda D. Levy for $12,000, to secure which accounts were assigned aggregating $14,500, and a judgment confessed in a sum exceeding $10,000.

The trial court found, and upon evidence warranting the finding, that the indebtedness for which judgment was confessed to her was not an obligation of the firm, but instead was the individual debt of her husband. Yet it appears that six days prior to the confession ■of judgment there was assigned to her firm accounts of a face value ■exceeding $14,500, from which there has been actually realized, after deducting expenses of collection, $10,314.39, and notwithstanding this transfer of good accounts to her, a judgment was confessed in her favor for over $10,000. After the judgments were entered, ■executions were at once issued, and a levy made by the sheriff upon •all the property and assets of the firm (excepting, of course, the .good accounts, which had been transferred six days before), and a ■sale thereunder had, Louis M. Levy, son of the senior member of the firm, and a brother of the others, purchasing the property for the judgment creditors, in pursuance of a previous arrangement with Batt, Cohen Brothers & Co., and Nathan Abraham, an uncle.

■ While the property was struck down to the several parties mentioned, Levy made the bids, giving the names of the jmrchasers to the -auctioneer, and specifying the amount chargeable to each purchaser. The persons in whose names the property was purchased at once turned over thé property to Louis M. Levy. The individuals to whom the accounts had been transferred immediately retransferred such accounts to the same person ; in a few instances checks had been received in payment of accounts and they were turned over in lieu of the accounts.

Thus it happened that by the eighteenth of October, or within a period of about twenty-two days from the confession of judgments, ;all the property and accounts of the firm of “ D. Levy & Sons ” passed into the possession and apparent ownership of their kinsman, Louis M. Levy.”

He gave to the purchasers, as a consideration of the transfer to him, his individual demand notes, and it is an interesting as well as important fact, that these demand notes were given, not for the amount of the purchase, but for the amount of the alleged indebtedness of the insolvent firm as expressed in the judgments confessed.

If these apparent purchases had been real, this arrangement would have resulted rather fortunately for Levy as an investment.

To illustrate, Cohen Brothers & Co.’s claim was only $5,000, but the accounts assigned to them, and retransferred to Levy in consideration of his demand note, were $15,000, and at the time of the trial there had been actually realized thereon, after deducting expenses of collection, nearly $9,000.

The accounts transferred to Isaac Levy for an alleged indebtedness of $2,500, amounted to over $6,500, on which had been realized at the time of the trial nearly $3,500.

The result of these transactions was, that all of the property of the firm had apparently become the property of Louis M. Levy, the relative creditors having ostensibly accepted him as their debtor in the place of the firm, with their position apparently • improved in this, that the substituted debtor was not burdened with the obligations of the firm to the general creditors.

Now it appears that Louis M. Levy was a travelling salesman for one Schwab, whose business was that of a jeweller, and as he understood that business he concluded to remain in it, and has done so. But the new business had to be carried on, and so he employed, he says, his three brothers, who were members of the late firm of D„ Levy & Sons, to conduct it.

A power of attorney was given to Michael Levy to sign and indorse the name of Louis M. Levy at the bank, and thereafter Louis M.’s relations to his employer continued without embarrassment by reason of the new enterprise in which he had embarked on the capital of others.

While the business, which was of the late firm of D. Levy & Sons ” was continued, at the same place, with the same persons in charge, with one exception, but under a different name, and apparently beyond the reach of creditors from some of whom portions of the property transferred, as has been described, had been purchased, one thing yet remained to be done to secure the transaction from being attacked by a hostile receiver, and so Isaac Levy, to whom had been assigned accounts amounting to over $6,000 in payment of an alleged claim of $2,500, transferred these accounts to Louis M, Levy for $1,500, with the understanding if more should be realized he would be paid the $1,000. It may be remarked in passing, that at the time of the trial of this action nearly $3,500 had been collected from these accounts.

But the reason for accepting $1,500 for the accounts is explained by the record, which discloses that on the thirtieth day of October, twelve days after the property had all been transferred to Louis M. Levy, Isaac obtained a judgment against I). Levy & Sons for this $1,000. On it an execution was immediately issued and returned unsatisfied the day following.

With such diligence did the creditor Levy proceed against the debtor Levy, that six days later a receiver was appointed, upon whose bond Michael Levy’s brothers-in-law and judgment creditors as well, Samuel and Morris Cohen, became the sureties. Having given liis bond, the receiver seems to have regarded his official labors as ended.

During the progress of the trial the generosity of the relative creditors towards Louis M. Levy evidently came to be regarded as embarrassing, for several of them testified in effect, that their action was induced by the desire to secure employment to Michael D. Levy. Mr. Cohen was asked:

“ Q. Did you make a condition with reference to his employing Michael D. Levy % ' A. I mentioned it. I mentioned that it would be a great help to him, and the fact that Michael D. Levy was my brother-in-law, and that he would be getting employment would be an advantage, and if he could give him employment, that I would like it. Q. What was your purpose in buying goods at the sheriff’s sale % A. The purpose was that Louis M. Levy could continue the business and give my brother-in-law, Michael D. Levy, employment.”

Morris Batt testified to a conversation with Louis M. Levy, in which “ it was said between us that he was to go on with the business himself. I told him I should like him to employ my brother-in-law, Michael D. Levy, in the business. He agreed to that partly; I presume he agreed to it. * * * He did employ Michael D. Levy and the other two brothers in the business.”

That the parties had it in mind from the beginning to help the firm is evidenced by their conduct and further assured by admissions, such as we have quoted. To some of the witnesses it seemed important to deny that they had intended to secure, under cover of •a third person, the business to the firm, and so they explained that their conduct was not for that purpose, and that they helped Louis M. Levy in order -to insure employment to the brothers in the late firm.

This, according to their own confession, was the purpose, and adding to it the circumstances, to some of which we have referred, the conclusion is irresistible that the parties thoughtfully planned a way by which they hoped and expected to secure to the members of the firm a livelihood out of a business which, in the ordinary course, would have been tarken from them by creditors.

We have thus called attention to some of the circumstances which lead us to the conclusion that the determination of the trial court, that the scheme was a fraudulent one, intended to cheat and defraud the creditors of the firm, was well grounded.

Necessarily we have been obliged to refrain, because of the already unreasonable length of this discussion, from an allusion to the many important and pregnant facts with which this large record abounds. While no reference has been made to the evidence of strict legal procedure, and the protestations of good faith on the part of the defendants upon which their counsel so strongly relies, it has been considered, and it may be said, that the steps do seem to have been carefully taken, indeed, almost too carefully, and the defendants have not failed to assert that their conduct was well meant and lawfully intended. But the circumstantial evidence ■ overbears their denial of guilt.

. It is said that some of the judgments are not so attacked as to permit a finding that they are without consideration.

True, but it matters not whether the firm was indebted in the sums confessed or not, if the object sought to be secured by a succession of steps, of which the confession was one, was to cheat and .defraud the creditors of the debtor firm. (Billings v. Russell, 101 N. Y. 226.)

The appell mts contend that the judgment, in so far as it directs “ Cohen Brothers & Co.” to pay to the receiver upwards of $14,000, is erroneous, in that it requires him to pay nearly $3,500 more than he received. “Cohen & Co.” did not collect the money it is true, but they did have the accounts. They saw fit to transfer them to Louis M. Levy. Having obtained the accounts through fraud, the court lias properly charged them with their value.

The exceptions to which our attention has been called, do not merit discussion.

The judgment should be affirmed, with costs.

Follett, J., concurred.

O’Brien, J.:

• Although it he assumed that the judgments, transfers, etc., are valid because founded on a valuable consideration, and have not been successfully assailed for fraud, the question still remains : Can these be used and employed as a shield so as to hold off all the other creditors while practically returning the property to the possession and subjecting it to the control of the debtors ? That this cannot be done has already been determined in the cases of Stimson v. Wrigley (86 N. Y. 332); Abegg v. Schwab (31 N. Y. St. Repr. 189), and Billings v. Russell (101 N. Y. 226).

I, therefore, concur for affirmance.

■ Judgment affirmed, with costs.


author: Parker, J.:

text:
    Randolph F. Purdy, Respondent, v. Agnes Lynch, as Executrix of James Lynch and Another, Appellants.

      Trustee — when liable for the acts of Ms associates — his personal convenience no excuse for a failure to perforin a duty —foots that do not create an estoppel in favor of a trustee charged with the waste committed by his associate'.

    Where trustees have obtained joint possession of a trust fund, and thereafter one of them turns over the funds to his co-trustee, he will, in case of the misappropriation thereof by his associate, be held responsible therefor.
    The personal convenience and comfort of a trustee cannot be accepted as an excuse for a failure to perform a duty.
    A trustee is responsible for his own acts, and not for those of his associates, and if the latter collect and misapply moneys, the trustee who has not received it is not liable for the waste. If ho is merely passive and does not obstruct the acts of his associates, he is not liable for the latter’s waste, if guilty of no negligence himself.
    After the appointment of a receiver of the Guardian Savings Institution iu November, 1871, one Roche, an officer thereof, conveyed all hii real estate to one Quinlan and two other persons, in trust to sell it, and with the proceeds pay the creditors of the savings institution the several amounts due them on the 1st of July, 1872, after which they were to reconvey the remaining property to the maker of the trust. It was provided that the payments should not be made to the creditors except on their delivery of a subrogation of their claims against the bank (of which Quinlan was the receiver) to Roche, the maker of the trust. All of the trustees qualified and entered upon the discharge of the duties of such office.
    Thereafter Roche conveyed to one McGowan the reversion in such real estate in trust, to pay his personal indebtedness to certain creditors named, and to reconvey the remaining property to him, after the payment of the expenses of executing the trust.
    Upon the trial of an action brought by McGowan against Quinlan and his associates to compel them to convey to him such of the real estate as remained unsold, it was shown that there was actually received from rents and the sale of real estate a sum exceeding, by §43,577.94, the amount paid out by the trustees, either to creditors or as expenses of administration, which the referee, before whom the action was tried, found to be the principal sum due. It was contended on the part of Quinlan’s co-trustees that Quinlan, as receiver of the savings institution, was in possession of its books, and, therefore, in a position to more conveniently pay and take subrogation from the depositors than his associate trustees, and that that portion of the work, devolved upon all of them by the trust deed, was intrusted to him, and that they should not be charged with any part of such principal sum, as it was wholly wasted by Quinlan without fault on their part.
    The other trustees took part with Quinlan in most instances in selling the real estate, the proceeds of which were mainly deposited to the credit of all the trustees, and were subsequently withdrawn and turned over to Quinlan, who failed to apply the sum, with which the referee charged the trustees, in the manner required by the trust instrument. There was no evidence showing an attempt on the part of either of his co-trustees to ascertain whether Quinlan was faithfully distributing the money which came into his hands.
    Judgment was awarded directing a conveyance to the plaintiff of all the real estate remaining unsold, and awarding to him, as against all of the trustees, a judgment for §53,420.58.

      Held., that the co-trustees were properly charged with the amount received by all of the trustees and turned over to Quinlan.
    The referee found that the plaintiff was, from the beginning of the trust, familiar with the action of the trustees, and knew that the money had been turned over to Quinlan by his co-trustees, for the purpose of, making payments and taking subrogations, and that he had, in behalf of one of his clients, received a payment from and given a subrogation to Quinlan alone. A petition was served upon Roche, for whom -the plaintiff was the attorney, in which it was asserted that the trustees were about to pay over the moneys to Quinlan, and asked that commissions be allowed upon such sum, after which, Roche and the plaintiff signed a consent that the trustees retain the sum of §6,000 for their commissions.

      It was not found, nor did it appear1 from tlie evidence, that the trustees were misled by the silence of the plaintiff, or that the plaintiff knew that the trustees neither paid nor intended to pay any further attention to the matter after turning over the moneys to Quinlan.

      Held, that assuming the trustee under the second trust deed might have so conducted himself as to estop him from recovering from those who by breach of their trust had permitted the moneys belonging to his cestui que trusts to be wasted, the facts did not exist upon which to predicate such estoppel.
    A portion'of the sum with which the referee charged the co-trustees of Quinlan, $17,040.09, never came into their hands. The evidence showed that two of the four checks representing such amount were made payable to the order of the attorney of the purchaser, and were by him indorsed directly to Quinlan. The other two were indorsed in blank, and Quinlan testified that they were received and deposited by him, and that his co-trustees never received any portion thereof. It did not appear that his co-trustees consented to the receipt of such moneys by Quinlan, or that they had knowledge of it at the time, or that they were in possession of any facts which should excite their suspicions touching either his integrity or responsibility.
    It also appeared that a sum of $3,143.89, charged by the referee against all of the trustees, was paid to Quinlan individually under similar circumstances.

      Held, that such moneys never having come into the possession of the co-trustees, they could not property be charged with the amount thereof.
    Shortly after the trustees had entered upon the execution of the trust, a meeting of all the trustees was held, at which one Walsh was unanimously chosen as their agent, to collect the rents and take charge of the real estate until it should • be sold. This selection was suggested by one of the co-trustees of Quinlan, who subsequently informed Walsh of the action of the trustees. Thereafter Walsh acted as their agent and turned over the net rents to Quinlan.

      Held,, that all of the trustees were chargeable with having had joint possession of the rents while they were in Walsh’S hands, and that his subsequent payment must be deemed to have been done by their direction.
    Appeal by tlie defendants, James Lyncli and Jolm E. Develin, from a judgment of tlie Supreme Court in favor of the plaintiff, entered in the office of the clerk of the city and county of New York on the 10th day of February, 1883, upon tlie report of a referee.
    Tlie defendant John E. Develin died February 23, 1888, and the defendant James Lynch died August 5, 1888; and the action was revived and continued against the respective executors of said deceased defendants.

      Charles E. Miller and Henry H Anderson, for the appellants.

      James Thomson, for the respondent.
   Parker, J.:

After the appointment of a receiver for the Guardian Savings Institution in November, 1871, one of its officers, Walter Roche, conveyed all his real estate to three persons in trust to sell, and with the proceeds pay the creditors of the Guardian Savings Institution the several accounts due them on the 1st day of July, 1872, after which to reconvey the remaining property to the trust maker.

It was further provided that payments should not be made to creditors except on the delivery of a subrogation by them to Walter Roche of their claims against the bank.

Jeremiah Quinlan, the receiver of the savings institution, and James Lynch and John E. Develin were named as trustees. All of them qualified and entered upon the discharge of the duties of such office.

Afterward “Roche” conveyed to “John T. McGowan,” the original plaintiff in this suit, the reversion in the real estate described in the deed to Quinlan and others, in trust to pay his personal indebtedness to certain creditors named, and to reconvey the remaining property to Roche, after payment of the expenses of executing the trust.

In March, 1875, McGowan instituted this suit, which resulted in a judgment directing a conveyance to him by Quinlan and his co-trustees of such of the real estate as remained unsold, and awarding to the plaintiff, as against all the trustees, a judgment in the sum of $53,420.58.

There was actually received from rents and sale of real estate a sum exceeding that paid out hy the trustees, either to creditors or as expenses of administration, $43,577.94, which the referee found to be the principal sum due.

But the trustees, Develin and Lynch, insisted on the trial, and their personal representatives still insist, that they ought not to be charged with that sum, or any part of it, because it was wholly wasted by their co-trustee Quinlan without fault on their part.

The trustee Quinlan, as the receiver of the savings institution, was in possession of the books of the institution, and, therefore, in a position to more conveniently pay and take subrogation from depositors than his associate trustees, and for such reason, doubtless, that portion of the work devolved upon all of them by the trust deed was intrusted to him.

The other trustees took part with Quinlau in most instances in selling the real estate, the proceeds of which were in the main deposited in a trust company to the credit of all the trustees. Subsequently they were withdrawn and turned over to Quinlan, who failed to apply the sum with which the referee charged the trustees, in the manner required by the trust instrument.

The general rule is, both in England and this country, that where trustees have once obtained joint possession of a trust fund, and thereafter one of them turns over the fund to his co-trustee, he will, in case of a misappropriation by his associate, be held responsible for* it. (Sadler v. Hobbs, 2 Brown’s Ch. 95 ; Curtis v. Mason, 12 L. J. [N. S.] 442; Brumridge v. Brumridge, 27 Bev. 5; Adair v. Brimmer, 74 N. Y. 539; Earle v. Earle, 93 id. 104; Croft v. Williams, 88 id. 384; Bruen v. Gillette, 115 id. 10.)

The reason for the rule is apparent, and has been often stated. As to the fund reduced to joint possession, all the trustees are in a situation to see to it that it is applied in the manner jirovided by the-trust maker, and it is the duty of each to take care that it is so applied.

The trust maker having elected not to permit a distribution of the fund by one trustee, any attempt to thwart his wish by an arrangement between the trustees must be taken on their own responsibility. Not the cestui gue trust but the trustees assume the burden which may result from their failure to perform the obligations of a trust because of a confidence which they and not the trust maker saw fit to repose in a single trustee.

The rule being founded upon a neglect of duty on the part of a co-trustee, to see that a proper application is made of the trust funds, it is urged that it should not be held ajiplicable here where, as the appellants allege, there’ was no such neglect, their contention being that it was impossible to pay and take subrogation from six or seven hundred depositors without the presence of the books of the bank, which were necessarily in the possession of Trustee Quinlan in his official cajiacity as receiver.

If that were so there was nothing to prevent the associate trustees from being present at the bank, except their personal and business engagements, and the personal convenience and comfort of a trustee it be not convenient for him to perform the obligations of the trust he must not assume them, but give way to another in a better situation to discharge them.

But there were other ways in which the payments could have been made, and subrogations taken, without the presence of all the trustees at the bank.

Every payment could have been made by means of a check bearing the signatures of all the trustees. It would likely have necessitated a second visit by the depositors, and occasioned more trouble on the part of the trustees, but it could have been done, and without great difficulty. Had it been the question would not now be presented whether the beneficiaries under the second trust deed or the estate of the solvent trustees shall bear the loss ?

If Trustees Develin and Lynch had turned over the moneys in small amounts, as it was required in the payment of depositors, and had from time to time examined the subrogations for the purpose of ascertaining whether they represented the sums which Quinlan claimed to have paid to depositors, the amount which Quinlan could have misappropriated, if any, would have been small, but no such precaution was taken. Indeed, in all this large record there is not a suggestion of an attempt on the part of either Develin or Lynch to ascertain whether their associate was faithfully distributing the two hundred and forty odd thousand dollars which came into his hands.

No precautions whatever were taken by them to assure such an application of the funds by them turned over to Quinlan as the trust required. Undoubtedly it was because of their great confidence in the personal integrity of Quinlan, but that does not present a legal excuse.

It is further contended that the plaintiff is estopped from asserting that the trustees are guilty of a breach of trust, because, with knowledge that the trustees were paying over moneys to Quinlan for distribution among the creditors, he did not object. The facts found by the referee which have a bearing on that question were, in substance, plaintiff was from the beginning of the trust familiar with the action of the trustees, and knew that the money had been turned over to Quinlan by the other trustees for the purpose of making payments and taking subrogations; plaintiff, in behalf of one of his clients, received a payment from, and gave a subrogation to, Quinlan alone; a petition was served upon Roche, fpr whom the the plaintiff was attorney, in which it was asserted that the trustees were about to pay over the moneys to Quinlan, and asked that commissions be allowed upon such sum, after which Roche and the plaintiff signed a consent that, the trustees retain the sum of $6,000 for their commissions.

There is nothing in the facts found, or in the record, which tends to show that the trustees were in any manner misled by the silence of the plaintiff. It is not suggested that their action was in any wise influenced by the omission of the plaintiff to speak.

Nowhere is it asserted that Develin and Lynch, in that which they did, supposed that their action ivas understood and approved by the plaintiff. He was not consulted by the trustees about the matter at all, and so far as their conduct is concerned, it does not appear that they in the least desired to know whether he or Roche approved of their plan of selecting one of their number to distribute the funds.

It is not found, nor does it appear from the evidence, that the plaintiff, knew that the trustees neither paid, nor intended to pay, any further attention to the matter, after turning over the moneys to Quinlan.

If he did .know, as we shall assume that he did, because the fact is so found, that all of the money* was turned over to Quinlan, it cannot be assumed, in the absence of any evidence whatever on the subject, that he also knew that when the money was so turned over, Develin and Lynch regarded their responsibility at an end, and had determined not to' inquire further whether the money should be properly applied. On the contrary, for aught that the record discloses, plaintiff was justified in assuming that the trustees understood the personal risk undertaken when they paid over the money, and had accordingly taken suitable precaution to assure its proper disposition.

It is difficult to discover from these facts any foundation upon which to rest an estoppel, which would deprive the cestuis qxoe trust under the last trust instrument from receiving the moneys which of right belonged to them.

Assuming that the trustee under the second trust deed might have so conducted himself as to estop him from recovering from those, who by a breach of their trust had permitted the moneys belonging to his oestuis que trust to be wasted, the facts do not exist here upon which to predicate it. The cases cited by the appellant are not applicable to this situation.

In Erie Co. Savings Bank v. Roop (48 N. Y. 292), S. allowed R. to make certain payments under a mistaken belief as to the facts, by which S. derived an immediate and direct advantage over R., and it was held that S.’s silence under such circumstances was deceitful and fraudulent.

Sherman v. Parish (53 N. Y. 483) was a suit instituted against a passive trustee, based upon an alleged breach of trust in permitting the active co-trustee to invest a portion of the trust funds in other securities than those authorized by the trust instrument. It was found as a fact that the plaintiff fully assented and acquiesced in the exclusive control and management of the co-trustee, and especially with the disposition made of the fund which was the subject of the controversy, and that she did this with knowledge of all the important and material facts and circumstances. This was held to relieve the defendant from any personal liability to the plaintiff on account of the acts of his co-trustee.

In this case there is neither a finding, nor evidence upon which to base one, to the effect that the plaintiff assented to the exclusive control and management of Quinlan in the disposition of the funds turned over to him.

. In Butterfield v. Cowing (112 N. Y. 486), the trustee omitted to follow the terms of the mortgage by which he had agreed to be bound, and thus became liable to respond to those suffering damage. Plaintiff was, however, denied relief, because, with frill knowledge of the facts, he first instituted a suit to prevent the carrying' out of the plan afterwards fully accomplished, and then withdrew 1ns suit, uniting in a stipulation in which he formally withdrew all opposition to the scheme, and was given permission to unite with the other bondholders in the new organization, which he promised to do. He desired to obtain a benefit by withdrawing the suit and’making the stipulation. His act, in some measure at least, induced the action of the trustee, of which he complained in his subsequent action, and his conduct was properly held to deny him the right of recovery against the defendant for a breach of trust.

A portion of the sum with which the trustees Develin and Lynch are charged by the referee, amounting to $17,040, never came into their hands. The learned referee based the refusal to so find upon the ground that it was paid to the counsel for the trustees. In this respect, we think, he was in error; while the deeds were prepared by their counsel, it does not appear that the payments aggregating such amount were made by or through him. On the contrary, the evidence seems to establish that such was not the fact.

Two of the four checks representing such amount were made payable to the order of the attorney of the purchaser, and by him indorsed directly to Quinlan. The other two were indorsed in blank, and Quinlan testifies that these checks were received and deposited by him, and that the other trustees never received any portion thereof. It does not appear that Develin and Lynch, or either of them, consented to the receipt of these moneys by Quinlan, and their deposit to his individual account, or that they had knowledge of it at the time. And it is not hinted that they were in possession of any facts which should have excited their suspicions, touching either the integrity or responsibility of Quinlan. These facts bring this case, so far as this item is concerned, within the rule asserted in Wilmerdinq v. McKesson (103 N. Y. 329), and Bruen v. Gillet (115 id. 10).

In the latter case the court said : “¥e have lately held that one executor (and I think the rule is the same with other trustees) is responsible for his own acts, and not for those of his associate; and if the latter collect and misapply the money, the executor who has not received it is not liable for the waste. If he is merely passive and simply does not obstruct the collection by his associate, he is not liable for the latter’s waste, if guilty of no negligence himself.”

In Wilmer ding’s case the same general rule was laid down; Judge Miller, speaking for the court, said: Where the funds of the estate were lawfully received by one of the executors, or were originally in his hands, or properly paid to him in the due course of administration, and there is nothing to excite suspicion as to the integrity or responsibility of such trustee, or to create a belief that the funds have been improperly used, or invested in violation of the established rules applicable to such cases, or were unlawfully allowed to remain uninvested, there is no rule which charges the executor or trustee wlio has not control of the fund, writh the wrongful acts or misconduct of his associate.”

It follows that the sum paid to Quinlan individually, with the interest thereon, which amounted to $3,143.89, should not have been included in the judgment.

The further point is made that Develin and Lynch are not chargeable with Certain rents amounting to over $18,000.

Shortly after the trustees had entered upon the execution of the trust a meeting of all the trustees was held, at which one Walsh was unanimously chosen as their agent to collect the rents and take charge of the real estate until it should be sold. This selection was suggested by Mr. Develin, who subsequently informed Walsh of the action of the trustees. Thereafter Walsh acted as their agent and turned over the'net rents to Quinlan.

Those facts support the conclusion of the referee, that all of the trustees are chargeable with having had joint possession of the rents while they were in Walsh’s hands, and that his subsequent payment must be deemed to have been done by their direction.

The judgment should be reversed and a new trial granted, with costs to the appellant to abide the event, unless the plaintiff, within twenty days, stipulate to deduct from the judgment the sum of $20,183.98, in which event the judgment must be modified accordingly, and, as so modified, affirmed, with costs of this appeal to the appellant.

O’Brien and Follett, JJ., concurred.

Judgment modified as directed in opinion, and, as modified, affirmed, with costs of this appeal to the appellant.