author: Follett, J.:

text:
    Joseph K. Murray, as Trustee for Mortgage Bondholders of the Steamship Cleopatra, Respondent, v. The Great Western Insurance Co., Appellant.

      Marine insurance — absolute total loss — constructive total loss — technical total loss — rights of assured — when and by whom a legal abandonment cam be effected — reasonable time therefor — evidence — reasonable efforts of the oioner of a vessel for its safety, a question for the jury — the question cannot be first raised on appeal — objection as to defective proof of loss — promissory notes of the owners allowed as counterclaims.

    An absolute total loss takes place when the subject insured wholly perishes, or there is a privation of it, and its recovery is hopeless. A constructive total loss takes place when the subject insured is not wholly destroyed, but its destruction is rendered highly probable, or the privation of it, though not quite irretrievable, is such that its recovery is either exceedingly doubtful, or too expensive to be worth the attempt.
    An absolute total loss entitles the insured to claim from the underwriter the whole amount of his subscription. A constructive total loss entitles him to make such claim, on condition of giving notice of abandonment of all right and title to any part of the property that may still exist, or that may still be recovered.
    In determining whether a ship is so far injured as to become a constructive total loss, its value as stated in the policy controls.
    A legal abandonment cannot be effected unless the person who assumes to make it has, at the time of the loss, the power to make a legal transfer of the property abandoned.
    An abandonment, to be effectual, must be made within a reasonable time ; but what time is reasonable is a question compounded of fact and law, which has not yet been reduced to such certainty as to enable the court to pronounce upon it without the aid of a jury.
    The provision of a marine insurance policy (in which the term “technical total loss”is used), which should be construed to mean a “constructive total loss,” considered.
    Evidence as to the condition of a vessel which presents a fair question for the jury, so that its verdict as to the vessel’s being a total loás should not be disturbed on the ground that it is contrary to the weight of evidence, considered.
    In an action brought to recover on a marine policy of insurance by which the defendant insured the Oleopatra against perils of the sea for one year, from September 16, 1878, for $9,000, under a policy in which the vessel was valued at $70,000, it was shown that the policy was taken out by and in the name of the owners of the ship.
    On the trial the defendant called one Perrets as a witness, who testified that he was interested with a Baltimore firm, in the purchase and sale of the vessel. He also testified as to its condition in February, 1880, when lying at Nassau, and that he purchased her February 23, 1880, for the Baltimore firm, and as-to the amount expended at Nassau in repairs, the amount expended in Baltimore for the same purpose, and that the last he knew of her, she was for sale in Baltimore.
    On his cross-examination the plaintiff was permitted to show by him that he paid £220 for the vessel at the auction sale, and that, on December 15, 1880, such firm exchanged the Oleopatm for a vessel valued in the trade at $6,000, and for $14,000 in cash and notes.

      Held, under the circumstances, that on his cross-examination it was competent to. show the amount for which the vessel was sold, for the purpose of enabling the jury to judge what weight should be given to the evidence of the witness, bearing upon the value of the ship.
    By an indorsement on the policy of insurance, the loss, if any, was made payable to the plaintiff as trustee- for certain mortgage bondholders. The vessel was also insured by other underwriters for $38,000. The mortgage was in the ordinary form, and contained in form, an absolute conveyance of the title with a defeasance. It recited that it was made to secure the payment of forty bonds of $500 each, with interest, and that when they were paid the mortgage should he void, and provided that, until default should he made in the payment ®f the bonds, the mortgagors should be permitted to possess and use the steamship and appurtenances, repair and renew the same, take and use the income thereof, and apply the same to the necessary current expenses and the purchase of necessary machinery and equipments, or dispose of the same for the legal uses of the mortgagors, in any manner not inconsistent with the mortgage, and, in case default should be made in the performance of any of the mortgagors’ covenants, that the mortgagee might take possession of the vessel and sell or dispose of the same at public or private sale. The mortgagors covenanted that they would keep the ship insured for at least $25,000, and assign the insurance to the mortgagee as additional security.

      Held, under the circumstances, that the owners of the ship had the right to transfer the vessel to the insurers, and, therefore, could effect a legal abandonment thereof.
    The defendant asked the court to decide as a matter of law, that the abandonment, was not made within a reasonable time, but made no request that any question of fact involved in that issue be determined by the jury. The court found against the defendant.

      Held, that it was not apparent that the question of reasonable time was erroneously determined by the court.
    Neither the court nor the jury was asked on the trial to determine the question, whether the plaintiff and the owners used reasonable efforts for the safety of the vessel, either as an issue of fact or of law.

      Held, that the question presented an issue of fact, which could not be raised for the first time on appeal.
    The policy provided that proofs of loss were to he authenticated by the agent of the company, if there should be one at the place where such proofs were taken, and in case of loss, such loss was to be paid thirty days after proof thereof, and of interest. When the proofs were served, the defendant did not object to them on the ground that they were not authenticated by its agent, nor for any insufficiency in their form, but the claim was disputed by the defendant, on the ground that it was not liable for a constructive total loss.

      Reid, that if the defendant then intended to stand on the defense that the proofs were defective, it should have given notice of the defects claimed, so that they could have been corrected.
    'The defendant read in evidence three letters written by the owners of the Cleopatra to their agent at Nassau, one dated October 81, 1878, one November 2, 1878, and the third November 15, 1878, and also two letters from them to the captain of the Cleopatra, one dated October 31, 1878, and the other November 2, 1878. The plaintiff was permitted to read in evidence, over the defendant’s objection, two letters from such agent to the owners, one dated October 24, 1878, and the other October 25, 1878, and also a letter from the captain of the Cleopatra to them, dated November 5, 1878.
    The letters all related to the circumstances of the stranding of the Cleopatra, and the extent of the loss, and formed the whole of a connected correspondence between the owners, their agent and the captain of the lost ship.

      Reid, that they were competent evidence.
    The defendant alleged in its answer, and proved on the trial as a counterclaim, three promissory notes given by the owners of the Cleopatra, to, and held by it. The first was for $301.25, given December 21, 1877, due December 24, 1878, the second for §901.25, given September 16, 1878, due September 19, 1879, the third for $721.25, given November 16, 1878, due November 19, 1879. The first and third notes were given for the premiums on two policies of insurance on other vessels, and the second for the premium on the policy in suit. The policy provided that in case of loss, such loss was to be paid in thirty days after proof of loss and interest, the amount of any note or notes given the company for premiums, if unpaid, and all other indebtedness being first deducted.
    On the trial, the plaintiff consented to the deduction of the amount of the note given for the premium on the policy in suit, and it was deducted, but the court refused to allow either of the other notes as a counterclaim.

      Reid, that the first note was due when the action was begun, and it should have been allowed as a counterclaim;
    That the third note was not due when the action was begun, and was not a proper counterclaim;
    That the amount due on the second note at the time of the trial should have been deducted from the amount due on the policy, as found by the jury.
    Appeal by the defendant, the Great "Western Insurance Company, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the city and county of New York on the 17th day of May, 1892, upon the verdict of a jury rendered at the New York Circuit, and also from an order denying the defendant’s motion for a new trial, entered in said clerk’s office on the 2d day of May, 1892, as resettled by an order entered in said clerk’s office on the 9th day of May, 1892.

      Treadwell Cleveld/nd, for the appellant.

      George O. Holt, for the respondent.
   Follett, J.:

This action was brought to recover on a marine policy of insurance by which the defendant insured the Cleopatra against perils of the sea for one year, from September 16, 1878, for $9,000, under a policy in which the vessel was valued at $75,000. The policy was taken out by and in the name of the owners of the ship, but by an indorsement, the loss, if any, was made payable to the plaintiff as trustee for certain mortgage bondholders. The vessel was also insured by other underwriters for $38,000.

The Cleopatra was a wooden steamship of about 1,045 tons burden, built in 1865. In August, 1878, she was found to be considerably “ hogged,” both ends being lower than the center, and in that month she was repaired, strengthened and supplied with new boilers. At this time and at the time of the stranding, David Golden Murray, Lindley Murray Ferris, Jr., and Robert M. Ferris, constituting the firm of Murray, Ferris & Co., were the owners of eighty-five one-hundredths, and Sophus Yalentine, the master, was the owner of fifteen one-hundredths. To secure the payment of $20,000, the cost of the repairs, Murray, Ferris & Co., September 12,1878, mortgaged their interest in the ship to Joseph K. Murray, as trustee, to secure the payment of forty bonds of $500 each. The mortgagors stipulated in the mortgage to keep the vessel insured for $25,000 for the benefit of the trustee. There was a prior mortgage of $6,000 on the ship held by Joseph K. Murray, individually, which he stipulated should become the second lien.

After the ship had been so repaired and insured, she made one round voyage between New York and Santiago de Cuba via Nassau and Cienfuegos, without accident, and October 17, 1878, she left New York on a second round voyage between the same ports.

October 23, 1878, the vessel was stranded on a reef in Douglas channel, near Nassau, New Providence, one of the Bahama islands. December 18, 1878, the owners gave the defendant written notice of the stranding, and that they abandoned the vessel to the insurers, and March 12, 1879, the plaintiff, as trustee, gave a like notice, in which the owners also joined. .

It is conceded that the vessel was considerably injured by the accident, and the plaintiff asserts that he and the owners were justified in abandoning her, and that he is entitled to recover for a constructive total loss.

Besides the question of damages, the only issue of fact submitted to the jury (neither party requesting the submission of any other), was whether the vessel was so injured that it became a constructive total loss. This issue has been three times tried; first, at Special Term before Mr. Justice Donohue, where a judgment was rendered for the plaintiff; second, before a jury which disagreed, and, lastly, before the jury which rendered the verdict on which this judgment now under review was entered.

The policy provides : And it is further agreed that in case a total loss shall be claimed for or on account of any damage or charge ' to the said vessel, the only basis of ascertaining her value shall be her valuation in this policy.”

The valuation clause in the policy is as follows:

“Hull and apparel valued at..........................$37,500

“ Boilers and machinery........... 37,500

“Total.........................................$75,000

“ The valuations of hull, tackle and apparel being made separate from that of the boilers and machinery, it is agreed that no abandonment of one interest as valued shall be made unless there shall be a total loss of the other.”

It was further provided in the policy: And, lastly, it is agreed that in case of any claim for loss or damage a deduction of one-tliird from the cost of repairing, or replacing the same, shall be made after deducting the value of the old materials, except in the case of ■anchors, and of sheathing of copper and other metal; a deduction of one-fortieth from the expense of repairing or replacing the metal, sheathing or any part thereof (after first deducting the value of the old metal and nails), shall be made for every month since the vessel was last sheathed until the expiration of forty months, after which time the cost of remetalling or repairing the same shall be wholly borne by the assured. If a technical total loss shall be claimed, similar deductions shall be made from the estimated repairs, and unless the net cost thereof would .exceed a moiety of the value of the vessel, after making such deduction, the loss shall be deemed partial only.”

The term “ technical total loss ” is used in the policy, which means the same as “ constructive total loss.” (2 Phil. Ins. 237; 2 Pars. Mar. Law, 336; 2 Pars. Mar. Ins. 110.)

Mr. Arnould, in his learned work on Marine Insurance (vol. 2, 951, 6th ed.), defines the term “ constructive total loss ” as follows :

“An absolute total loss takes place when the subject insured wholly perishes, or there is a privation of it, and its recovery is hopeless. A constructive total loss takes place when the subject insured is not wholly destroyed, but its destruction is rendered highly probable, or the privation of it, though not quite irretrievable, is such that its recovery is either exceedingly doubtful or too expensive to be worth the attempt. .

“An absolute) total loss entitles the assured to claim from the underwriter the whole amount of his subscription. A constructive total loss entitles him to make such claim, on condition of giving notice of abandonment of all right and title to any part of the 'property that may still exist, or may still be recovered.” This definition is approved by the courts and text books. (3 Kent’s Com. 318; 2 Phil. Ins. 237; 2 Pars. Mar. Ins. 107, and cases cited.)

The foregoing is the general rule, but in cases of injuries to vessels, and in the absence of stipulations in the policies on the subject, the courts of different jurisdictions do not agree as to the proportion which the cost of repairing must bear to the Aralue of the ship, so as to justify an abandonment and a claim for a constructive total loss. (Dickey v. New York Ins. Co., 1 Cow. 222; affd., Dickey v. American Ins. Co., 3 Wend. 658 ; Saurez v. Sun Mutual Ins. Co., 2 Sandf. 182; 2 Pars. Mar. Ins. 125 et seq. ; 2 Arn. Mar. Ins. [6th ed.] 952; Irving y. Manning, 1 H. L. Cas. 287.) And the courts do not agree, in the absence of stipulations on the subject, whether the valuation in the policy, if the vessel be therein valued, or the value of the ship just before the injury, or its Avalué after reparation, should be taken as the basis in estimating the proportion of the cost of repairs to value. (American Ins. Co. v. Ogden, 20 Wend. 287; Wallerstein v. Columbia Ins. Co., 44 N. Y. 204, 217; Patapsco Ins. Co. v. Southgate, 5 Pet. 604; Deblois v. Oceanic Ins. Co., 16 Pick. 303; Peele v. Merchants' Ins. Co., 3 Mason, 27 ; Bradlie v. Maryland Ins. Co., 12 Pet. 378 ; 3 Kent’s Com. 331; 2 Pars. Mar. Ins. 134; 2 Am. Mar. Ins. [6th ed.] 995, 1046, 1055, 1148.)

In the case at bar it is provided in the policy that a constructive total loss shall not be claimed unless the net cost of repairs, after making the deductions specified in the clause, exceed one-half of the value of the vessel. In this State the rule is that in determining whether a ship is so far injured as to become a constructive total loss its value as stated in the policy controls. (American Ins. Co. v. Ogden, supra; Wallerstein v. Columbia Ins. Co., supra; 3 Kent’s Com. 331.) This is also the rule in Massachusetts (Deblois v. Oceanic Ins. Co., supra), and in England. (Irving v. Manning, supra; 1 Arn. Mar. Ins. [6th ed.] 301.)

The Supreme Court of the United States holds that the actual value of the ship immediately before the accident is to govern. (Patapsco Ins. Co. v. Southgate, supra; Bradlie v. Maryland Ins. Co., supra; 3 Kent’s Com. 331.)

The learned trial judge instructed the jury in accordance with the rule of this State, which was acquiesced in at the trial by the litigants, and the accuracy of the instruction is not questioned by counsel on this appeal.

Whether the extent of the injuries sustained by the vessel was sufficient to justify its abandonment, 'within the rule of this State, was a sharply contested issue of fact, which the appellant insists was determined contrary to the weight of evidence.

Two surveys were made of the Cleopatra by surveyors appointed by the United States counsel at Nassau. The first one was October 24, 1878, at Cochrane’s Anchorage, the day after the stranding. This survey was made by James H. Gamblin, Henry O. Lightbourne and Charles Smith, assisted by two divers, Charles Sweeting and William Glinton.

Gamblin testified that he was a merchant and Lloyd’s surveyor ; that he had been called on to act as such on several occasions, and that he was familiar with ships and shipping; that he had been the chief officer of a vessel for ten years and was at one time chief officer of one of the Cunard steamships. He testified:

“We found her sheer line hogged fully ten inches amidships, the upper deck waterway scarfs broken, butts open, joiner work in the cabin started, some of the bulkheads down, and with a general appearance of being badly strained; she had steam up in the starboard boiler to pump with the donkey engine, which was constantly going, her rate of leakage being about eight inches an hour, she then lying in smooth water. All the signal wires were broken, both of her boilers had shifted, starting the brace bolts and breaking one brace entirely. The port boiler was crushed across the saddle bearing about ten inches in length-

“ The hogging of the vessel and the shifting of the boilers drew out the slip joints of the main steampipe about twelve inches. The safety valve of the donkey engine was broken, the escape pipe crushed flat, the fire pipes broken, fire room ventilating plates broken, worming of several screws and nut bolts broken, holding-down bolts were some of them started and others broken, hex-smokestack was started forward about twelve inches, the hurricane deck rails cut down and the port lifeboat damaged. We discovered that by reason of the damages sustained, that the said steamship was in a bad condition and unseaworthy in reference to her prosecuting her voyage.”

Lightbourne, the other surveyor, testified that he was port officer of the port of Nassau, aixd that for thirteen years he had acted as surveyor of wrecked and injured vessels. He testified that he could not at that time describe the injuries to the vessel, but that they were accurately set forth in a report made October 25, 1878, which was not received in evidence.

Smith, who was an engineer, testified that he had been familiar with steamships for many years and had been engaged in repairing their machinery. The following is his description of the condition of the macliinei-y:

“ I found her at anchor afloat. I discovered the main steam pipe slip joint drawn out, so far as I can now remember, ten or twelve inches. I found in the fire i-oom that the leg of the port boiler had foi-ced its way, and cracked the boiler through about eight or ten inches right under the front part of it. The safety-valve escape pipe was crushed flat against a beam of the upper deck. I also observed that the globe valve of the donkey pump was cracked in two. These were all the injuries pointed out to me in the machinery, engines and boilers, by the chief engineer. I could see that the cracked boiler had started from its position.

“ Q. What did you discover by the said examination or survey to be the condition and seaworthiness of the said steamship with reference to her prosecuting her voyage ?

“ A. I discovered that from the injuries I have just explained the ship was not in a fit condition or seaworthy for prosecuting her voyage.”

He further testified that the vessel could not have been permanently repaired at Nassau, for the lack of machinery, foundries and facilities; that the boilers, engines and machinery could not have been repaired without taking them out, and that no facilities existed at Nassau for doing that work. lie also stated that the marine railway at that port was not strong enough to take up the Qleopato'a.

The divers testified that they found the keel ground down to the garboard streak for a long way amidships ; at one place forward it was cut nearly through, so far that they regarded her back as broken, and that they brought up jueces from the keel as large as one of their arms, and several feet long.

November 26, 1878, a second survey was made by Gamblin, Lightbourne and Finlayson, who were appointed by the United States consul. Gamblin described the condition of the vessel as about the .same as on the first examination, and testified that, in his judgment, the cost of making permanent repairs would be equal to her value when repaired.

Lightbourne testified : On the second examination we found, by the aid of water glasses, after the ship had been careened, that in several jfiaces the keel was cut down to the garboard. Divers were also sent down. The breast hooks were slightly started. The lodging and hanging knees were gaged, bolts being loose and some of them broken. The between-deck stanchions had been moved, bending the iron straps and 'starting strajs bolts. As far as I recollect, two beams were broken off in the clamps in the engine room on the starboard side, and a lower clamp short across the grain on the port side, several tree nails had started inwards, and I recollect sending them out with a hammer.

“ Twenty-se'cond interrogatory: Was or was not the said steamship in a condition fit to prosecute her voyage; was she or not seaworthy ? What do you say as to whether or not the back was broken %

“ [Defendant’s counsel objects to the last line of that interrogatory as calling for a conclusion and as leading. Objection overruled. Defendant excepts.]

“Answer. I do not think she was seaworthy. She had the appearance of her back being broken.”

He also testified that the cost of making permanent repairs would have been almost equal to the value of the steamship after it had been repaired.

Finlayson, the other surveyor, died before his evidence was taken.

George H. M. Allen, a ship carpenter for over forty years, who had been employed by C. & P. Poillon, and had been their foreman since 1863, testified that he had assisted in repairing the vessel in 1878, and that in June, 1880, he examined her at Baltimore. He said the vessel was hogged about fourteen inches, and described at great detail many imperfections in the ship, and a result of his evidence is that the ship had been badly damaged and was of but little value.

Mr. William D. Dickey, a mechanical engineer, who had been superintendent of a ship yard for eight years, testified that he had assisted in putting in the new boilers and machinery into the Cleopatra in 1878 ; that in June, 1880, he examined her with Mr. Allen, at Baltimore. He describes with great particularity the defects of the boilers and machinery, and the result of his evidence is that the boilers and machinery were very greatly damaged, and not of much value.

Gregory M. Mullen, a witness called in behalf of the plaintiff, testified, I made a measurement with a rule of the actual hog of the vessel when she was on “the dry dock in Baltimore, and I put it to be twenty-six inches exactly ; I measured from the garboard streak to the outer edge of the keel.” '

The learned counsel for the appellant, in his brief, characterizes the evidence of Gamblin, Lightbourne and Smith as willfully false and fictitious. We find nothing in the record to justify this. On the contrary, the agent of the defendant at Nassau, Mr. Samuel O. Johnson, who was called as a witness in its behalf, testified: “ I was acquainted with all of them; Lightbourne, Gamblin and Finlayson have been called by me, and at my suggestion, on surveys. I know nothing derogatory to their characters.”

Nor do we find anything in the testimony of Mr. George II. M. Allen which justifies the assertion that he went to see the vessel in Baltimore for the sole purpose of finding her a subject for abandonment.”

As against the evidence of these witnesses the defendant produced testimony to the effect that the vessel was not seriously injured and that it might have been repaired by the expenditure of less than one-half of its valuation, deducting one-third from new for old.

The subsequent history of the Cleopatra does not seem to be inconsistent with the theory that she was a constructive total loss. She remained in the harbor at Nassau until February 23, 1880, one year and four months after the stranding, when she was sold by public auction to Charles Wintemitz & Sons of Baltimore, Md., dealers in old iron and machinery. She was first offered for. sale February 10, 1880, by the auctioneer at $1,000, but no bids being received the sale was adjourned until February twenty-third, when the ship was sold for £220. Between that date and May 15, 1880, she was temporarily repaired at Nassau at an expense of $858.08, and on the latter date sailed for Baltimore where she arrived on the twenty-fifth of the same month. Between the latter date and December 15, 1880, she was repaired at Baltimore at an expense of $5,181.37, and on the date last named she was sold for $11,000 and a vessel valued in the trade at $6,000.

The learned counsel for the appellant cites in support of his argument upon this branch of the case many English cases and authorities, to the effect that a ship cannot be abandoned as a constructive loss unless it is so damaged that it cannot be rendered navigable again, except at a cost greater than her repaired value. It is only necessary to say of this class of authorities that they do not express the rule of this State, nor the rule to which these litigants bind themselves by the policy.

Under this state of the evidence the question was a fair one for the jury, and we are not inclined to disturb the verdict upon the ground that it is contrary to the weight of evidence.

The defendant called Nathan B. Perrets, who was interested with Winternitz & Sons in the purchase and sale of the vessel. He testified to its condition in February, 1880, when lying at Nassau, and that he purchased her February 23, 1880, for the above-mentioned firm. He also testified to the amount expended at Nassau in repairs, and to the amount expended in Baltimore for the same purpose, and that “ the last I knew of her she was for sale in Baltimore.”

On the cross-examination the plaintiff ivas permitted to show by this witness that he paid £220 for the vessel at the auction sale, and that December 15,1880, Charles Winternitz & Sons exchanged her for a vessel called the Falcon, valued in the trade at $6,000, and for $11,000 in cash and notes.

It is urged by the appellant that evidence of the price obtained for the vessel was not competent. Undoubtedly it would not have been competent for the plaintiff to have given evidence of the price obtained for the vessel at a private sale made more than two years after the stranding. (Roe v. Hanson, 5 Lans. 304; Flannagan v. Maddin, 81 N. Y. 623 ; People ex rel. Mayor, etc., v. McCarthy, 102 id. 630, 639; 2 Whart. Ev. § 1290.) But the defendant had, by this witness, given evidence of the condition of the vessel when purchased at Nassau, of the amount expended on her in that harbor and the amount expended in repairing her at Baltimore. The purpose of this evidence was to show that the vessel was of such value that it could not be regarded as a constructive total loss. On the cross-examination it was competent to show the amount for which the vessel was sold at these dates for the purpose of enabling the jury to' judge what weight should be given to the evidence of this witness bearing upon the value of the ship.

It may be noted in this connection that Samuel O. Johnson, sworn in behalf of the defendant on commission, testified, in speaking of the cost of the vessel and repairs at Nassau, “the purchase and repairs, I was informed, amounted to about $5,000.”

Was a legal abandonment effected ? As before stated, the owners gave the defendant written notice of abandonment on the 18th of December, 1878, in which the plaintiff did not join. It is now asserted that the owners having mortgaged the vessel, and the insurance being payable by indorsement to the mortgagee, that they were without power to make a legal abandonment. The mortgage is in the ordinary form, and contains in form an absolute conveyance of the title with a defeasance. It recites that it is made to secure the payment of forty bonds of $500 each, with interest, and that when they are paid the mortgage shall be void. The mortgage further provides : “And until default shall have been made by the parties of the first part in payment of said bonds, the parties of the first part shall be permitted to possess and use the said steamship and appurtenances, and to repair and renew the same, and to take and use the income thereof, and apply the same to the necessary current expenses and the purchase of necessary machinery and equipments, or dispose of the same for the lawful uses of the mortgagors in any manner not inconsistent with this mortgage.”

It provides that in case default shall be made in the performance of any of the mortgagors’ covenants that the mortgagee may take possession of the vessel and sell or dispose of the same at public or private sale. The mortgagors covenanted that they would keep the ship insured for at least $25,000 and assign the assurances to the mortgagee as additional security.

A legal abandonment cannot be effected unless the person who assumes to make it has, at the time of the loss, the power to make a legal transfer of the property abandoned. (2 Pars. Mar. Ins. 119; 2 Arn. Mar. Ins. [6th ed.] 956.)

In Hunt v. The Royal Exchange Assurance (5 M. & S. 47), it was held that where an assurance was effected by part of the owners they might make a legal abandonment for all of the joint owners.

In The Chesapeake Ins. Co. v. Stark (6 Cranch, 268), it was held that an agent who procured an insurance for his principal and who abandoned the subject of the insurance must, in the absence of evidence that lie was without authority, be presumed to have had authority to make the abandonment.

In Gordon v. Massachusetts F. & M. Ins. Co. (2 Pick. 249, 260), a vessel was insured in the name of the plaintiff, who was the owner. Afterwards he executed an absolute bill of sale of the ship which contained no defeasance. By the instrument the title to the property was not to revest in the plaintiff upon the performance of any condition. It was shown, however, on the trial that the bill of sale was intended as security for the payment of debts due from the owner to the transferee. It was held that by virtue of the absolute transfer, the plaintiff had divested himself of the legal title to, and dominion over, the property, could transfer none and could not abandon it to the insurers.

In Bidwell v. North Western Ins. Co. (19 N. Y. 179), the defendant insured a vessel on account of Crocker, the owner, the loss, if any, payable to Bidwell, the mortgagee. It was stated in the policy that there were no other liens upon the vessel. A loss occurred, and it turned out that there were two prior mortgages on the vessel. It was held that the insurance was of Crocker, the owner, upon the vessel, and not of Bidwell upon his interest as mortgagee of Crocker’s equity of redemption, and that the mortgagee could not recover on the policy. In the case at bar, the insurance was of the interest of the owners, not of the interest of the mortgagee.

In Younger v. Gloucester Marine Ins. Co. (Sprague, 236 ; affd., 2 Curtis C. C. 322), it was held that the master of the vessel has not, by virtue of his office, authority to abandon her to the underwriters.

In all the cases the right to abandon turned on the power of the person tendering abandonment to transfer title to the subject of the insurance to the insurer. In the case at bar the owners had the undoubted right to transfer the vessel to the insurer, and, therefore, could effect a legal abandonment of her. In addition, the owners procured the insurance for the mortgagee, who subsequently, March 12, 1879, notified the defendant that the owners’ notice of abandonment of December 18, 1878, was given with his authority and that he ratified and confirmed it. This brings the case within the principle of The Chesapeake Ins. Co. v. Stark (supra). It appears in this case that June 20, 1878, the owners mortgaged the vessel to Joseph II. Murray to secure the payment of $6,000, and June 21, 1878, to Murray to secure the payment of $4,000, both mortgages falling due September 14, 1878. These mortgages are not in the case, and we are ignorant of their terms, nor do we know that they were unpaid when the vessel was stranded.

"Was the abandonment timely? November 26, 1878, the second and final survey was made, and a notice of abandonment was served December 18, 1878. The case does not disclose how frequently mails were transmitted between Nassau and New York, nor whether there was telegraphic communication between those ports, although it appears inferentially from tlie letter of Murray, Ferris & Co., of November 15, 1878, put in evidence by tlie defendant, that Savannah was tlie nearest and most convenient telegraph station.

In The Chesapeake Ins. Co. v. Stark, Chief Justice Marshall, speaking for the court, said : “ The law is settled that an abandonment, to be effectual, must be made in reasonable time ; but what time is reasonable is a question compounded of fact and law, which has not yet been reduced to such certainty as to enable the court to jironounce upon it, without the aid of a jury. Certainly the delay may be so great as to enable every man to declare, without hesitation, that it is unreasonable, or the abandonment may be so immediate that all will admit it to have been made in reasonable time; but there may be such a medium between these extremes as to render it doubtful whether the delay has been reasonable or otherwise. If it was a mere question of law which tlie court might decide, then the law would determine, to a day or an hour, on the time left for deliberation, after receiving notice of the loss. But the law has not so determined, and it, therefore, remains a question compounded of fact and law, which must be found by a jury under the direction of the court.”

The defendant asked the court to decide, as a matter of law, that the abandonment was not made within a reasonable time, but made no request that any question of fact involved in that issue be determined by the jury, thus leaving the court to determine all questions and inferences of fact arising from the evidence bearing on this question. The facts and inferences from them having been found against the defendant; it is not apparent that the question of reasonable time was erroneously determined by the court.

It is U2’ged that the court e2Ted in not dis2nissing the complaint because of the plaintiff’s failure to use all reasonable endeavors for the safety of the vessel. Whether the plaintiff and the ow2iers used reasonable efforts for the safety of the vessel was an issue of fact, but neither the court nor the juiy was asked on the trial to determine this question either as 02ie of fact or of law, and it cannot be raised for the first time on appeal.

We think the defenda2it is not in the position to raise the question that the proofs of loss served on it are nisufficicnt. The following are the provisions of the policy: “ Proof of loss to be authenticated by the agent of the company, if there be one at the place where such proofs are taken. * * * And in case of loss, such loss to be paid in thirty days after proof of loss and proof of interest in the said......” When the proofs were served the defendant did not object to them on the ground that they were not authenticated by its agent, nor for any insufficiency in their form, but the claim was disputed by the defendant on the ground that it was not liable for a constructive total loss. If the defendant then intended to stand on the defense that the proofs were defective, it should have given notice of the defects claimed so that they could have been corrected. (Karelsen v. Sun Fire Office, 45 Hun, 144 ; 2 May Ins. § 469.)

The defendant read in evidence three letters written by Murray, Eerris & Co. to their agent at Nassau, T. Darling & Co., one dated October 31, 1878, one dated November 2, 1878, and another dated November 15, 1878, also two letters from Murray, Eerris & Co. to the captain of the Cleopatra, one dated October 31, 1878, and the other dated November. 2, 1878. The plaintiff was permitted to read in evidence, over the defendant’s objection that they were incompetent, irrelevant and immaterial, two letters from T. Darling & Co. to Murray, Eerris & Co., one dated October 24, 1878, the other October 25, 1878, and also a letter from the captain of the Cleopatra to Murray, Eerris & Co., dated November 5,1878. The letters introduced by the respective parties all related to the circumstances of the stranding and the extent of the loss, and formed the whole of a connected correspondence between Murray, Eerris & Co., their agent and the captain of the lost ship, and they were competent. Ry reading these letters all together and in the order of their dates, they explain one another and furnish a clearer account of the situation than can be obtained by reading only a part of the letters. The letters received by Murray, Eerris & Co. disclosed what information they had when they wrote letters introduced by defendant.

The defendant pleaded in his answer and proved on the trial as a counterclaim three promissory, notes given by Murray, Eerris & Co. to the defendant and held by it. The first was for $301.25, given December 21, 1877, due December 24, 1878, for the premium on a policy on the steamer San Jacinto ; the second, for <$901.25, given September 16, 1878, clue September 19, 1879, for the premium on the policy in suit; the third, for $721.25, given November 16,1878, due November 19, 1879, for the premium on a policy on the steamer Norma/n. The policy provides: “ And in case of loss, such loss to be paid in thirty days after proof of loss, and interest in the said ......(the amount of any note or notes given this company for premiums, if unpaid, and all other indebtedness being first deducted).”

The- plaintiff consented on the trial to the deduction of the amount of the note given for the premium on the policy in suit, and it ivas deducted, but the court refused to allow either of the other notes as a counterclaim. The first note was due when this action was begun, and we think it should be allowed as against the claim. The plaintiff is an assignee of Murray; Ferris & Co., and stands in their shoes, and has no right to recover any amount beyond that which Murray, Ferris & Co. could have recovered on the policy. The third note was not due when this action was begun, and was not a counterclaim. The amount due on the second note at the time of the trial was $542.25, and it should have been deducted from the amount due on the policy as found by the jury.

The judgment should be reversed and a new trial ordered, with costs to the appellant to abide the event, unless the plaintiff stipulates, within twenty days after service of notice of the order to be entered on this decision, to deduct from the verdict $542.25, but if the stipulation is given, the judgment is affirmed, without costs in this court to either party.

Van Brunt, P. J., and O’Brien, J"., concurred.

Judgment affirmed, without costs in this court to either party, upon plaintiff giving the stipulation mentioned in the opinion.


source: Caselaw Access Project

author: Per Curiam :

license: Public Domain

text:
    Frederick A. Card, Appellant, v. Mary H. Meincke et al., Respondents.

      Action by a judgment creditor to reach the income of a trust fund — evidence as to-the sufficiency of the income.

    In an action brought to reach and have applied on a judgment what the judgment creditor claimed was the excess of the income of a trust fund over what was necessary to support the judgment debtor, the defendant Meincke, the plaintiff proved that the income of the fund was $3,186.96 a year.
    The defendant Meincke proved that prior to the death of her husband, under whose will the defendant was entitled to the income of the fund for her life, they had lived much more sumptuously than she had since, and the plaintiff' failed to prove satisfactorily that the defendant Meincke could live comfortably on less than the income of the fund.

      JBeld, that it was apparent that the income of the fund was not more than enough to support the defendant properly, and that the plaintiff’s complaint was properly dismissed.
    Appeal by the plaintiff, Frederick A. Card, from a judgment of the Supreme Court in favor of the defendant, 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 Ith day of March, 1893, dismissing the plaintiff’s complaint.
    The defendant Meincke’s husband left her the income for life of a trust fund of about $40,000, the income varying from $2,000 to $2,500. The plaintiff recovered judgment against her for $163.85, and brought this action to reach the income of the fund, claiming that it was more than sufficient to support the defendant.
    It was found as a fact by the court before which the trial was had that the annual income of the fund was $2,186.96.
    The evidence of a witness offered on behalf of the plaintiff was-to the effect that he (the witness) supported a family of five persons and had two servants, in Brooklyn, where the defendant resided, for $1,400 a year.
    The defendant testified that prior to her husband’s death she had lived much more expensively than subsequently; that she paid $1,000 rent for her house and required the assistance of her sons to run the same.

      L. Karge, for the appellant.

      F. IF. Ilinriohs, for tlie respondents.
   Per Curiam :

¥e see no reason for interfering with the conclusion arrived at by the learned judge below. The evidence of the plaintiff in regard to the amount necessary to support the defendant was entirely unsatisfactory and unreliable, the figures of the principal witness not by any means maintaining his conclusions. It seems to be apparent from the evidence which was introduced upon the part of the plaintiff that the amount received by the defendant from the provision made for her by her husband was not in excess of that which was necessary for her decent and proper support. And there seems to be no reason why any part of the money with which the husband had endeavored to provide for the support of his widow should be anticipated by her creditors, and she deprived of the use of the same for the purpose of support.

The question in regard to the form of the judgment entered has been discussed in the opinion on the appeal from the order in this .action, decided herewith.

The judgment should be affirmed, with costs.

Present — Yan Brunt, P. J., Follett and Parker, JJ.

Judgment affirmed, with costs.


author: O’Brien, J.:

text:
    Sumner T. Dunham, Respondent, v. John J. Ringrose and Israel B. Van Housen, Appellants.

      Default — a refusal to open a third judgment by default in the same action is an exercise of discretion which will not be interfered with on arppeal.

    An action, tlie plaintiff in which was an assignee for value of a claim against sureties on an undertaking upon an appeal (the remedies against the original judgment debtors having been exhausted), was three times reached on the Circuit calendar, and judgment bjr default taken against the defendants. The first two defaults were opened and the judgment set aside, but a motion to open tlie last default and set aside the judgment was denied.
    On appeal from the order denying such motion,

      Held, that the judge at Special Term, in denying the motion, exercised his discretion wisely.

      Appeal by tlie defendants, John Ringrose and Israel 33. Yan Honsen, from an order of the Supreme Court, made at the New York Special Term and entered in the office of the clerk of the city and county of New York on the llth day of April, 1893, denying the defendants’ motion to open their default and set aside the judgment entered thereupon.

      Bay K. Smith, for the appellants.

      Olark Bell, for the respondent.
   O’Brien, J.:

If the rule of law that there should be an end to litigation is not an obsolete one, then should it be applied to the facts here appearing % The defendants’ attorney, who was the principal debtor, has, by procuring the substitution of sureties, the giving of an undertaking, the assignment of a mortgage as collateral, and, above all, by dilatory-motions and an equity action, succeeded in preventing the collection of a debt, originally evidenced by a promissory note given for value, and which, after a protracted litigation, carried twice to the General Term on appeals from orders, it was adjudged he should pay.

Upon one of such appeals the undertaking was given by the defendants which is the subject of this action.

With a final judgment in his favor, secured by an undertaking upon appeal, and after exhausting the remedy by execution against the judgment debtors, it would seemingly present a case where a creditor might reasonably expect satisfaction of his claim against the sureties. Not so in this instance, for the defendants’ attorney, having but sharpened his appetite in the first action, found ample food to> sustain him in a guérilla warfare which he has successfully waged for more than two years. Having tired out Taylor, the original judgment creditor, the latter assigned the judgment and undertaking to this plaintiff for what is sworn to by the latter to have been a valuable consideration. In this suit against the sureties on the undertaking, the execution of the undertaking, the recovery of judgment and notice to defendants are admitted; but, by way of defense, it is claimed that in a transaction between Andrew 3L Smith, one of the sureties on the original note, and Taylor, the latter had extended the judgment, on receiving an assignment of a mortgage as additional security, to March. 14, 1891, when, upon payment of the claim, the judgment and mortgage were to be reassigned to Andrew K. Smith ; and if not paid in cash, that the mortgage Avas to be accepted by Taylor as a satisfaction of or as a consideration for the assignment of his judgment. In passing, it may be said cash was not paid on March 14,1891.

The case was placed on the short cause calendar for trial, and when reached, the defendant not appearing, a judgment in plaintiff’s favor Avas had. Thereupon defendants moved to open the default, ■and asked for a stay until the final determination of an action brought by Andrew IL Smith to compel an assignment of the judgment upon the same state of facts set up by way of defense in this action. So much of the motion as asked for a stay was denied, but the default Avas opened upon terms, the judge ordering the case again on the short cause calendar for trial.

Upon a motion to bring in this plaintiff as a defendant in the Smith suit, and for an order enjoining the trial of this action until the determination of that, a preliminary stay Avas granted, but upon the hearing it was vacated and an order was made making Durham (this plaintiff) a defendant in that action but without prejudice to this action.

Again placed on the short cause calendar, this action Avas again reached for trial, but, defendants absenting themselves, plaintiff recoATered judgment in May, 1892. A motion to open this default was made and another preliminary stay obtained. Again ■the stay was vacated, but the default opened upon terms.

The explanation of defendants’ course is to be found in the fact that by suffering these defaults and by obtaining intermediate temporary stays, they obtained what they sought and what the court had refused them, viz., a trial first of the Smith suit against this plaintiff and Taylor. Though tried no decision was given, and though three judges had decided that this should not prejudice this plaintiff’s action against these defendants, another temporary stay was obtained until the hearing of a motion returnable December 27, 1892.

Dates are now important. This cause was again reached for trial on December 16, 1892, and was postponed upon an express stipulation by defendants that it should be tried or a judgment suffered on the twenty-third. On December twenty-third, no one appearing for defendants, a default was taken and for the third time a judgment entered, and thereafter, on the same day, the stay upon the motion made returnable on the twenty-seventh was served on plaintiff’s attorney.

This prevented any further action until January, 1893, when the decision in the Smith suit was handed down, dismissing the complaint on the merits. Thereupon this plaintiff, as ■ lie had the right to do, proceeded to enforce his judgment by issuing execution, but before he obtained a return from the sheriff the defendants obtained another stay and made another motion to open the default of December twenty-third, and it is from a denial of this last motion that this appeal is taken.

~We have thus gone over the successive steps taken in the two actions because they render further comment unnecessary. The same attorney who, as said, was the principal debtor, appeared throughout, and is entitled to the credit of having successfully held off this plaintiff for two years in a simple action that could be tried in an hour, even if we assume that the transactions between Andrew 3L Smith and Taylor were available in this action between these parties.

Having been beaten in the Smith equity suit, he can, as was therein suggested, if unsuccessful on his appeal, obtain 'an adequate remedy at law. But whether he can or not, he has exhausted his remedies in this action, and we think that the discretion was wisely exercised by the judge at Special Term in denying the motion to open the last default, and that the order appealed from should be affirmed, with ten dollars costs and disbursements.

Eollett and Parker, JJ., concurred.

Order affirmed, with ten dollars costs and disbursements.


author: Parker, J. :

text:
    Anthony Van Bergen, and Others, Respondents, v. Ludwig Lehmaier, and Others, Appellants.

      General assignment — presumption of good faith— materiality of findings of fact— constructive guilty kn-owledge by one partner — facts calling for the reversal of a judgment setting aside an assignment.

    The making of a general assignment for the benefit of creditors, in the manner authorized by statute, does not raise a presumption that the object in view is to prevent a distribution of the property assigned, and to coerce a settlement with creditors.
    It must be assumed that findings of fact, which a trial court deemed of sufficient materiality to make, were considered by it in-reaching its conclusions of law.
    A member of a firm will not be deemed to have a constructively guilty knowledge of a business transaction wholly outside of the firm business, because his partner and a clerk participated in it.
    Where the amount of a preference is for a much smaller proportion of the cash value of the assets than is authorized by statute, it is not a subject of legal criticism.
    What evidence is insufficient, to support a finding that the assignment was not intended by the assignors to distribute the assigned property among their creditors, but to coerce a settlement.
    There is nothing unreasonable or improper in the suggestion of compromise first coming from the assignors.
    Appeal by the defendants, Ludwig Leiimaier, Sigmund Herzog and Nathaniel Myers, from a judgment of the Supreme Court iu 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 Yt-h day of June, 1892, adjudging that the assignment made by the defendants Lehmaier and Herzog to the defendant Myers on the lYtli day of March, 1891, for the benefit of creditors, was fraudulent and void as against the plaintiffs, and appointing a receiver of the assigned property.

      Nathcmiel Myers, for the appellants.

      John J. Adams, for the respondents.
   Parker, J. :

The firm of Lehmaier & Co., composed of Ludwig Lehmaier and Sigmund Herzog, on the lYth day of March, 1891, made a general assignment for the benefit of their creditors.

As composed at the time of the assignment, the firm had been in existence since January 1, 1890. For two years prior to that time, Adolph Ilochstadter had been the junior member of the firm, but was succeeded by Herzog at the date mentioned. Lelnnaier & Co. were wholesale dealers and importers of silks and dress goods in the city of New York, doing an annual business of $1,000,000 and upwards.

The assigned estate, after deducting over $300,000 of assets pledged as security against loans made on the strength of the pledges, had a cash value of over $170,000. The net cost value of the assets, after deducting unpaid duties, and the amount of debts contracted on the pledges of assets, was merchandise, $227,400.05 ; other assets, $98,137.53 ; total, $325,537.58.

The unsecured liabilities amounted to $375,000, including, however, $24,111.34 of contingent liability. So that, taking the assets at their cost price, there was a disparity between assets and liabilities •of about $25,000.

But one creditor was preferred in the assignment. He was a brother of the senior member. of the firm, and the amount of his preference was about $20,000. He had been for a number of years the commissionaire in Leipsig, of the firm, purchasing merchandise in his own name from parties in Germany, paying for it himself, shipping it in his own name to the firm, and receiving from the latter the cost price of the goods, plus his disbursements, and a commission of three per centum upon his outlays for his services.

It was for moneys thus expended, and for the commissions, by which his services were compensated, and not otherwise, that he was preferred. The amount of the preferences being for a much smaller proportion of the cash value of the assets than authorized by statute, it is not a subject of legal criticism.

The rest of the partnership assets were unreservedly devoted by the assignment to the benefit of all the creditors of the firm. Not' content with receiving a ratable proportion of the assets, after payment to the preferred creditor, the plaintiffs obtained judgment, and thereafter instituted this suit to set aside the assignment, resulting in a judgment in their favor.

The trial court found as a fact that the assignment was made “with the intent to hinder, delay and defraud their creditors, including plaintiffs.”

As evidentiary facts it was found in substance:

(1) That in November, 1881, Lehmaier executed a deed, which, in form, conveyed to a third party property then valued at a few thousand dollars, situated in the town of Yonkers, who, on the same day, “ went through the form of executing a deed of the said real estate ” to Lehmaier’s wife, but that the deeds were not recorded until the day preceding the making of the assignment.

That tlie title did not pass until the deed was recorded, and it was then passed for the purpose of defrauding the creditors of Lehmaier and of the firm.

(2) That on the ÍOtli day of March, 1891, Lehmaier conveyed through a third person to his wife a lot adjoining the premises described in the deed of November, 188Y, for which he paid $1,085; that such conveyance was wholly without consideration, and in fraud of the rights of his creditors.

(3) That such conveyance was made with the assent and connivance of the defendant assignor Sigmund Herzog, in furtherance of the said scheme to defraud the creditors of the defendant assignors, including the plaintiffs.

(4) That the said assignment was made by the defendant assignors with the intent to coerce their creditors into a settlement, and the schedules were made up and filed by them in pursuance of such scheme.

(5) That the said assignment was not intended by the defendant assignors to distribute among their creditors the assigned property, but wras solely made, and intended by them, to transfer tlieir property with intent to hinder, delay and defraud creditors, and to coerce them into a settlement.

No other finding of fact touching the alleged misconduct of the assignors, or either of them, was made, and it must be assumed on-this review that findings which the trial court deemed of sufficient materiality to make were considered by him in reaching the conclusion that the facts supported a general finding that the assignment was made with intent to defraud the firm’s creditors.

Now, there was evidence tending to show a consideration for the conveyance of March 10, 1891.

The contention of the Lehmaiers, husband and wife, being that subsequent to the deeds of 1887 a loan was obtained on the property therein described of $1,000, a portion of which was used to pay for the indebtedness incurred in the purchase of the lot last conveyed to her, which had no special value, except as connected with the property described in the deeds of 1887.

But, assuming that the finding is supported by the weight of evidence, the finding immediately following, which is necessarily connected with and dependent upon it, is wholly without evidence to support it.

It is that such conveyance was made with the assent and connivance of the junior member of the firm, and in furtherance of the scheme to defraud their creditors. There is no evidence that Herzog participated in, assented to, or even knew of the conveyance at the time it was made.

It is true that the conveyance was made through a clerk of the firm as the conduit.

There is no evidence that the clerk had any knowledge or suspicion that a fraud was contemplated, if one was, or that he communicated to anyone ydiat had taken place. Certainly it cannot be said that a member of a firm will be deemed to have constructively guilty knowledge of a business transaction wholly outside of the firm business, because his partner and a clerk participated in it.

The error in the finding was probably brought about because of the fact that Herzog was the third party through whom the conveyance was attempted to be made in 1887, but he was not then a member of the firm, nor did he become such until more than two years afterwards.

That the finding thus erroneously made (doubtless because it was mistakenly supposed that Herzog was a party to the last instead of the first conveyance) had weight with the court in making the decision, seems highly probable, not only because the finding was deemed of sufficient materiality and relevancy to justify the court in making it, but also for the reason that in that way only could the assignee and Herzog be affected by the individual act of Lehmaier touching individual property — property wholly unconnected with the partnership and unaffected directly by the firm assignment.

Another finding which must be. deemed to have had weight with the court in making the general finding that the assignment was made with intent to hinder, delay and defraud the creditors of the firm, was, in substance, that the assignment was not intended by the assignors to distribute among their creditors the property assigned by it, but to coerce a settlement.

It is difficult to find support for that finding in the record.

Clearly the making of a general assignment, in the manner authorized by statute, does not raise a presumption that the object in view is to prevent a distribution of the property assigned, and to coerce a settlement with creditors.

When that act has been fully performed, and the defendants have parted with dominion over the assigned estate, the creditors are in a position to enforce, through the courts, a due administration thereof. The assignors did not attempt to retain control over the property assigned, and clearly they were powerless, in the absence of wrongdoing on the part of the assignee, to disturb the assurances which the law gives to creditors, that the assets will be properly marshalled, honestly husbanded, and ratably distributed among those entitled thereto.

The evidence contains no suggestion of unfaithfulness to his trust on the part of the assignee, no hint of an effort on his part to induce a settlement, which should secure to the creditors less than their due proportion of the estate. On the contrary, it was found as a fact “ that the execution of the said general assignment to said defendant Nathaniel Myers was accompanied by an immediate, and was followed by an actual and continued change of possession of the property assigned thereby, and that said assignee proceeded to administer upon the property thus assigned to him, and did administer according to law.”

If, as the finding declares, the assignee took possession of the property, and proceeded to and did administer the estate assigned according to law, how can it be possible to find that the assignors intended that something else should bo done, in the absence of evidence suggesting that they had reason to expect that the assignee would act otherwise than he has ?

But for the subsequent effort to bring about a composition with creditors, it would not have been suggested even that the purpose of the assignment was to coerce a settlement with the creditors. Lehmaier says that the idea of a compromise did not originate with him, but with certain large creditors after this suit was begun, April twenty-fifth. And it appears that all of the creditors save three, preferred such a disposition of the matter, and agreed upon a basis, which, for aught that the record discloses, might have consumed all the assets of the estate.

But if the fact was that the suggestion first came from Lehmaier, instead of his falling in with the wishes of creditors, as he contends, there would be nothing wrongful in it, so long as it was a mere proposal, to be accepted or rejected, as the judgment of the creditors should dictate.

Ilis control over the property was gone. It was being administered lawfully, and, in the absence of collusion with the assignee, of which there is no hint, the assignors were powerless to affect the rights or remedies of the creditors.

In such a situation there was no legal impropriety in advising or requesting a compromise. That fact, standing alone, would not support the conclusion that an assignment was made to coerce a settlement with creditors. A proposition of that kind, made under the circumstances described, contains no element whatever of coercion. No word or deed has been proven against the assignor or assignee, subsequent to the assignment, which could have had for its purpose the compelling of any creditor to surrender any of his rights, lest by refusing he should be a greater loser.

On the other hand, there is evidence that some of the larger creditors, provoked by the refusal of these plaintiffs, and two other creditors to join in the composition, and thus permit an immediate and ratable payment, proposed that judgments be confessed in their favor, to the end that they might first institute suits attacking the assignment, and thus plaintiff and the two other creditors would be assured that if the assignment should be set aside they would not receive anything because the judgments first obtained would be large enough to absorb the assets. With such a prospect confronting them, it was urged they would be likely to change their position, and consent to share with the other creditors. This was regarded by the assignors and the assignee as well as coercion, and for that reason they refused to lend their aid to the project. The finding next preceding the one we, have been considering asserts that the schedules were made up in pursuance of the scheme to coerce the creditors into a settlement.

There were two omissions from the schedules. The first a piece of real estate in Florida, owned by Lehmaier individually, for which he paid about $100. He testified that he had not paid any taxes on it since his purchase, and had forgotten that he owned it. The firm had no interest in it, and it had no proper place in the firm’s schedule.

The second item was a claim against the United States government for $9,000, the value of which was dependent on litigation, then pending between the government and certain importers. Had it been inserted, it would necessarily have been appraised at a merely nominal value. The claim was not assigned or transferred to anyone, and. necessarily passed to the assignee by the assignment, but respondents’ contention is, that it was omitted from the schedules in order to persuade creditors that the estate was of less than its real value.

The explanation offered by the assignors is, that the schedules, were not prepared by them personally, but by a Mr. Annabel, who was employed by the assignee, and assisted by the clerks of the late firm, and that they did not examine the schedules item by item,, but assumed that the work done had been correctly performed.

This explanation seems to have support in other facts. The account was not regarded as of any substantial value. It appeared on the books of the firm, then being examined by plaintiffs’ experts, who at times had them in their possession, so that the assignors knew that the experts not only had the opportunity to find out, but it was their business to discover and report any omissions from the schedules.

When the attention of the assignee was called to the omission, he at once caused an amended schedule to be filed, in which was set forth the facts in regard to the claim. The amended schedule is, in respect to this claim, not open to criticism. It recites all the facts connected with it, and asserts that while the claim' had little if any value when the assignment was made, it is now probably worth fifty cents on the dollar, by reason of a favorable decision involving the main point. There is nothing in the evidence to be pitted against the testimony of the witnesses, that the claim was mistakenly and not intentionally omitted from the schedules, and the corroboration of other facts and circumstances, except the naked fact that the claim does not appear upon the original schedules. We think it ought not to be held, upon such a state of facts, that the schedules were falsely made with the view of coercing the creditors.

As we have reached the conclusion that the findings contain error which call for a reversal of the judgment, we shall refrain from discussing other questions which the record presents, for it may well be that on a new trial the evidence will be so far changed as to render such a discussion fruitless.

The judgment should be reversed, with costs to the appellant to abide the event.

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

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


author: Parker, J.:

text:
    Luther Kountze and Others, Appellants, v. Edward T. Kennedy, Executor of, etc., Respondent.

      ffi'aud — evidence necessary to establish it — when knowledge of the falsity of the representations need not be shown — good faith.

    In an action brought to recover the damages resulting from an alleged fraud, the burden of proof is upon the plaintiff to establish separately and independently representation, falshy, scienter, deception and injury.
    Where all the requisite elements of such an action are present, except knowledge on the part of the person making the representations of their falsity, no recovery can be had unless such person assumed or intended to convey the impression that he knew such representations to be true, though conscious that he had no such knowledge.
    What evidence does not establish bad faith in making representations.
    Appeal by the plaintiffs, Luther Kountze, Herman Kountze and Charles B. Kountze, from a judgment of the Supreme Court in favor of the defendant, entered in the office of the clerk of the city and county of New York on the 19th day of May, 1892, upon the report of a referee, dismissing the plaintiffs’ complaint on the merits, and for costs.

      The action was brought to recover $100,000 damages alleged to have resulted to the plaintiffs from certain fraudulent representations by which they were induced to purchase certain stock.

      Wheeler TI. Peekham and George W. Van Slyek, for the appellants.

      Wm. B. Hornblower and Wm. B. Bronk, for the respondent.
   Parker, J.:

Defendant’s testator, John P. Kennedy, was during the period covering the transaction in controversy, and for a number of years prior thereto, the president of the Howe Machine Company.”

He was also interested in other enterprises, one of which brought about an acquaintance with Kountze, one of the results of which was a request by Kountze that Kennedy advise him of any business opportunities in which it might be deemed desirable to invest money. Prior to November, 1883, Mr. Kennedy, although jn-esident of the corporation, had only a nominal interest in it, having-accepted the position at the request of Cornelius K. Garrison, who owned the controlling interest in the stock of the corporation. About that time a Mr. Parmly and Mr. Wheeler purchased Garrison’s interest in the corporation.

For his stock, which numbered thirty thousand (30,000) shares, they paid $36,000, and for his accounts against the company, which were adjusted at $250,000, they issued and delivered to him the first mortgage bonds of the corporation in a like amount. Kennedy was then invited to join with the jnn-chasers in an active participation in the company’s affairs.

This he conseuted to do, and to that end purchased one-tliird of the thirty thousand (30,000) shares of stock, for which he paid $12,000. To secure the funds deemed to be necessary for the conduct of the business, it was determined to issue and sell second mortgage bonds aggregating $200,000.

Kecalling the request of Mr. Kountze, that he be informed of opportunities for investment, Kennedy told him of the plans of the corporation, at the same time assuring him that as soon as the matter should be in shape to present to him it would be done, and an opportunity afforded for the purchase of the bonds.

One hundred thousand dollars of the bonds issued were purchased by the plaintiffs, who received as a bonus stock of the corporation contributed by owners of the thirty thousand (30,000) shares equal to the par value of the bonds. -

Before the purchase was consummated, Kennedy was requested to furnish Kountze with a statement of the company’s assets and liabilities.

In pursuance of such request Kennedy subsequently handed him a statement which is as follows:

Assets.

Real estate, Bridgeport....................... $460, 000

“ “ “ elsewhere........................ 34,000

“ Personal property............................ 205, 000

“ New building and machinery.................. 35, 000

Bills receivable, accounts.............'......... 300, 000

“ $1, 034, 000

Liabilities.

“ First mort. bonds............................ $320, 000

“ Less sinking fund............................ 50, 000

“ $210, 000

“ Savings bank................................ 80, 000

“ Bills payable and open accounts................ 150, 000

“ $500, 000”

The referee has found, and upon evidence sufficient to support it, that the' statement as to the assets was substantially true. But with reference to the liabilities he found that the balance sheet of the corporation showed an indebtedness at the time of the preparation of the statement of $511,001.31, whereas the statement gave the liabilities at $500,000.

He further finds that the excess, amounting to upwards of $10,000, was deducted because it was supposed that they were not actual liabilities of the company, or did not properly belong to bills payable and open accounts. The referee further found that there were certain small liabilities, aggregating $8,262.67, which had not been entered upon its books at tlie time of the sale of the bonds. That another item not included in the statement consisted of a claim against the company by Mrs. Stockwell, then in suit, upon which the company denied liability, but subsequently compromised at the sum of $15,000, which it was agreed should bo paid in installments.

Another item not included in the statement of liabilities of the company consisted of a claim on a draft for $62,475, which claim was then in suit, .the property of the corporation having been attached at the time of its commencement. "With reference to all of these items the referee found in substance that the company insisted that there was no liability on its part, and that collection was resisted by it, Kennedy and the other officers of the company having reasonable cause to believe that it would not be held liable for them.

He further found that when Kennedy presented the statement and made the representation set forth in the complaint, he had no intent to deceive or defraud the plaintiffs, but believed the same to be in all respects true, and that he had reasonable ground for believing it to be true. If the findings to which we have referred are to stand, the judgment dismissing the complaint should be affirmed. The plaintiffs, claiming to have been defrauded, had one of three courses open to them :

(1) To rescind the transaction, offering to restore what they had received, and commence a suit for the recovery of the moneys paid.

(2) To bring a suit in equity to obtain a rescission of the contract, and to recover what they had parted with, the pleadings containing an offer to restore what they had received.

(3) To keep what they had received and to sue for damages for the fraud.

The plaintiffs chose the latter remedy, and thereby assumed the burden of establishing separately and independently five things, representation, falsity, scienter, deception and injury.

If any one of these essential constituents of an action of this character be lacking there can be no recovery. (Brackett v. Griswold, 112 N. Y. 467.)

It is both proven and found that the representations were made, that they were untrue, that plaintiffs were deceived thereby, and that damage resulted, but it is not found that defendant had knowledge that they were untrue; on the contrary, it is affirmatively found that he believed them to be true, and had reasonable ground for his belief.

In addition to the general rule stated by the court in the case last cited, there have been before the courts many times, controversies where all the requisite elements of such an action were found to be. present except knowledge on the part of the person making the representations of their falsity, and its absence has universally been held to prevent a recovery. (Marsh v. Falker, 40 N. Y. 565 ; Chester v. Comstock, Id. 515, 576, note; Oberlander v. Spiess, 45 id. 115;. Wakeman v. Dalley, 51 id. 21; Duffany v. Ferguson, 66 id. 484;, Dally v. Wise, 132 id. 306.) An exception to this rule is where the person making the representations assumed or intended to convey the impression that he knew them to be true though conscious that he had no such knowledge (Marsh v. Falker, supra), but that question will be considered, so far as necessary in this case, later on.

We are thus brought to the question whether the findings which assert the good faith of Kennedy, and that the circumstances attending the making up of the statement were of such a character as to afford him reasonable ground upon which to rest his belief in the truth of the statement, have such support in the evidence as require the court to affirm them.

Kennedy did not make up the statement personally, but requested the secretary to make it and to make it conservative, and to submit, it to the counsel of the company for his approval.

The secretary testifies that he prepared the statement with great care, and when it was completed he, believing it to be truthful, submitted it to Mr. Wheeler, the company’s general counsel, who looked over it carefully and revised it, and then it was handed to Mr. Kennedy. When it came into his hands the bills receivable and accounts were put at $400,000, and Kennedy inquired of the secretary whether he thought that a conservative estimate, and on being answered that they aggregated more than that, he suggested, in order to be on the safe side, that they be estimated at $300,000. This was acquiesced in, the statement accordingly corrected, and subsequently submitted to Kountze by Kennedy. Of course there was no evidence to contradict the testimony of Kennedy and the. secretary touching the manner in which, the statement was made up, and the situation was such that necessarily there could be none. But the referee had the parties before him, and was thus enabled to form an opinion as to the probable truthfulness of the alleged history, of the acts and sayings of the several persons taking part in the preparation of the statement. If fully believed, it tended very strongly to support the -conclusion at which the referee arrived. It tends to show that Kennedy not only believed the information which he gave to Kountze to be correct, but also that he had taken reasonable precautions against the making of an inaccurate statement.

Personally, he was unfamiliar with the books, and he applied" to the person who had them in charge, knew about them, and was apjoarently thoroughly competent to acquire and furnish the desired information. A still further precaution was taken of having the statement examined and approved by their counsel.

Further support of the findings is furnished by the testimony of the secretary, assigning the reason which induced him to fix the liabilities at about $11,000 less than that shown by the balance sheet, and also the ground which induced the omission of the further liabilities which the referee found in fact existed.

In order to appreciate his testimony in that respect, it will be well to bear in mind that the liabilities stated to exist were comprised in three items:

First mortgage bonds.........".................... $210,000

Savings bank......................-.............. 80,000

Bills payable and open accounts.................... 150,000

Total....................................... $500,000

The first item was correctly stated, the second item represented the principal of the debt due the savings bank, in addition to which the company owed it $10,018.15, which was an ■open account, and included in the item of “bills payable and open accounts, $150,000,” on the statement presented by Kennedy to Kountze.

Therefore, the error, if any there was in stating the indebtedness at a less amount than shown by the books, must be found in that item. The books show the liabilities on March 1, 1884, as follows:

Bills payable:

City Savings Bank............................ $80, 550 80

Bridgeport Bank.............................. 15, 000 00>

A. B. Stockwell.............................. 10, 000 00

Indianapolis Cabinet Co......................... 5, 537 10-

Sundry bills payable........................... 79,477 89'

$190,565 79.

Accounts payable:

C. K. Garrison................... $242, 237 81

Howe Sewing Machine Co......... 2, 625 96

Bridgeport Sav. Bank (int.)........ 1, 800 00

Howe St. property (rent)........... 239 00

Sundry accounts payable........... 98, 281 75

345,184 52;

Total.

$535,750 31

From these items the secretary made the following deductions:

First mortgage bonds.............. $270, 000 00

City Savings Bank................ 80, 550 80

A. B. Stockwell.................. 10, 000 00

Bridgeport Bank.................. 15, 000 00

“ “ (int.)............. 1,800 00

Indianapolis Cabinet Co........... 5, 537 10

Howe Sewing Machine Co......... 2, 625 96

Howe' St. property (rent)........... 239 00

Total deductions.......................... 385, 752 86-

Leaving a balance of bills and accounts payable of. $149, 997 45

While the statement presented to Mr. Kountze showed.....,................................... $150,000 00

The two first items, namely, first mortgage bonds, and indebtedness to City Savings Bank, were properly deducted, because separately stated on the paper given to the plaintiffs.

As to the other items, he testified that he deducted the Stockwell claim of $10,000 because it was for a draft drawn on the Howe Machine Company ” by Stoelcwell, and accepted by the treasurer without, authority. Subsequently the company successfully defended the suit brought upon it. The Bridgeport Bank items, principal and interest, were deducted because the money never came into the. possession of the company or benefited it, which claim the company not only refused to pay, but it never was paid, nor has it ever been called upon by the bank to pay it since their first refusal. The “ Indianapolis Cabinet Company ” item, he says, he deducted because the “ Ilowe Machine Company ” did not in fact owe it. That such apparent indebtedness consisted of a note which he regarded as accommodation paper. It was given to the cabinet company pursuant to a contract with it, that they should úse the paper, and furnish woodwork for it. When the woodwork should be received, which event had not yet happened, then the company would have property equal in value to the face of the note. With reference to the Howe Sewing Machine Company item, he testified, that while it appeared on the books as a liability, in reality that company was indebted to the Howe Machine Company. The last item, Ilowe Street property (rent),” he stated to be simply a transfer Recount to show the receipts and disbursements of a block of houses.

This evidence, if believed, justified the referee in reaching the conclusion, that in stating the liabilities at a less sum than they •appeared on the books, the secretary acted in good faith, and Kennedy had reason to believe that the deductions from the apparent liabilities were justly made. This brings us to a consideration of the items which the referee has found to have been liabilities not appearing on either the books or statement.

The first consists of various small items, aggregating $8,262.67, which were placed on the books subsequent to the making of the statement. Without stopping to consider the several items making up such amount, it may be said generally, that some of them were for bills rendered and paid subsequent to the making of the statement; that over one-half of it consisted of taxes which were not entered upon the books until May 26, 1884 And further, it should be said that it nowhere appears that the secretary knew of the existence of such items when he prepared the statement, nor is there any direct evidence that Mr. Kennedy knew about them. The referee found that there was an indebtedness to Mrs. Stockwell of $15,000, which was not included, in tlie statement. This claim, which was originally for $100,000, was founded upon a bond purporting to be given by the Iiowe Machine Company ” as an indemnity to secure Mrs. Stock-well for any mortgage which she might give for the benefit of the Howe Machine Company.” The books contained no reference to its existence, and liability thereon was denied by its officers.

■ The only mortgage than she ever executed ivas to the “ Bridgeport Savings Bank ” to secure the sum of $15,000, which has been referred to elsewhere as deducted from the liabilities by the secretary on the ground, as ho alleges, that the money never came into the hands of the company.

Some time in March or April, 1884, and necessarily after the statement was made, a suit was brought on the bond, which was compromised April nineteenth following, by the giving of a note by the company for $15,000, payable in installments. Whether any demand was made upon the officers of the company for the payment of any sum on this bond prior to the making of the representations, does not appear, nor does it appear that Kennedy knew anything about it prior to the commencement of the suit. The referee further found that the company was indebted to the Credit Company, Limited,” in the sum of $62,475, which was not included in the statement of liabilities.

This liability arose under the following circumstances: A. B. Stockwell, while in London in 1877, drew drafts in such amount upon the Howe Machine Company,” which were accepted by his brother, who was then treasurer of the company.

The proceeds of the drafts were applied to the individual use of. the drawer, the company never receiving any benefit from them, and their acceptance by the treasurer .was without authority.

A recovery was subsequently had on the drafts, and the judgment finally affirmed by the court of last resort, the case being reported in 54 Conn. 357, the chief justice of the court dissenting from the conclusion reached by his brethren. •

Whether Kennedy, at the time of making the statement, had his attention drawn to the pending suit, or had it in mind, does not appear. There is no evidence on the subject. And its omission by the secretary in making up the statement was said to be justified on the ground that nothing appeared on the books in reference to it, the suit; which was of long standing, being regarded by the company to be without merit, their opinion being based upon the advice given by competent and leading lawyers, both in New York and Bridgeport, that the claim was without validity and could not he enforced. A further circumstance tending to show Kennedy’s confidence in the enterprise in which plaintiffs were embarking with him, may be found in his loans to the company and investment in its bonds and stock. The first investment was about four months prior to the making of the statement, when he paid $12,000 for a third interest in the stock; subsequent to that and prior to March, 1884, he loaned the company $22,200. He purchased fifty of the same class of bonds as those bought by the plaintiffs, paying $40,000 therefor. Still later, and on October fifth, he paid $7,000 for ten bonds, and December twenty-seventh following he paid $1,400 for two bonds. June 10, 1884, he paid $2,000 for 400 shares of stock, and made' a standing offer for the company’s stock at five dollars per share. lie also loaned or indorsed for the company to the amount of $70,000, of which $25,000 still remains unpaid. A further circumstance may he properly alined to. When Kennedy handed the statement to Kountze he requested him to go to Bridgeport and look over the property and affairs of the corporation. This he did, and while there it is not pretended that he was not afforded every facility for making a thorough investigation.

We have thus alluded to some of the evidence which tends to support the conclusion of the referee, that this remarkably inaccurate statement of liabilities, when presented to Kountze by Kennedy, was believed by the latter to be true, and that there was reasonable ground upon which to found such belief. The record is not without evidence supporting contrary inferences. But it is not of such a character as to warrant this court in setting aside the findings complained of, on the ground that such determination is against the weight of evidence. The further point is made that the referee erred in refusing to find that the said representations of the defendant to the plaintiffs were so made as to convoy an impression to the plaintiffs that the defendant had actual knowledge of the truth thereof.” It is a significant fact that although Mr. Kountze was examined and cross-examined in relation to the conversations had between him and Mr. Kennedy prior to, at the time of giving, and subsequent to tlie statement, lie did not suggest tliat Kennedy bad assumed to have personal knowledge of tlie condition of tlie company, or said tliat lie was making statements of bis own personal knowledge. Subsequently, and on rebuttal, lie gaVe testimony tending in that direction. Ilis testimony in that respect was afterwards denied by Kennedy. The appellant seeks to draw a contrary inference from the testimony of Kennedy on cross-examination. But after examining it in connection with the rest of his testimony on that subject, and considering it in connection with Kountze’s evidence, the conclusion is reached that the refusal to find as requested has such support in the evidence as- requires an affirmance of the determination of the referee in such respect. "We have examined the other exceptions relied on by the appellants, but they do not need discussion.

The judgment should be affirmed, with costs.

O’Brien and Follett, JJ., concurred.

Judgment affirmed, with costs.