(199 App. Div. 733)

(192 N.Y.S.)

MULDOON v. DOCK CONTRACTOR CO.

(Supreme Court, Appellate Division, Second Department. January 20, 1922.) 1. Contracts 228-Subcontractor held not entitled to additional compensation for carting materials sold by him.

Under a contract to cart material excavated by a contractor from a subway, providing that the contractor should have title thereto and that the subcontractor should deliver same wherever he designated, but that if either arranged a sale thereof, and the subcontractor carted same, he should receive 50 per cent. of the proceeds, the subcontractor could not recover such additional compensation for a sale made by him, where he carted the material to the dump to which he was required to cart material under his general contract, and the contractor refused to permit the pur chaser to have it; it being necessary that the material be sold by the contractor, as well as carted by the subcontractor.

2. Appeal and error 248-Regardless of exceptions, case may be reversed for errors shown on record.

The court may reverse a judgment and direct a new trial for errors of law appearing on the face of the proceedings, though not raised by proper exceptions.

Appeal from Supreme Court, Kings County.

Action by John Muldoon against the Dock Contractor Company. Judgment for plaintiff, and defendant appeals. Reversed, and new trial granted.

Argued before BLACKMAR, P. J., and RICH, KELLY, JAYCOX, and MANNING, JJ.

John P. Maloney, of New York City, for appellant.

John B. Johnston, of New York City (Anthony J. Ernest, of New York City, on the brief), for respondent.

PER CURIAM. The plaintiff had a contract to cart all the material excavated by the defendant from a section of the subway which it was building. The plaintiff has performed all his work under said contract and has been paid in full therefor. That contract contained this further provision:

"That the contractor is to have title to all excavated material, and upon order of the contractor so to do the subcontractor shall deliver same to wheresoever the contractor may designate; provided that, should the contractor or subcontractor arrange for a sale of the excavated material, and the subcontractor cart same, then the subcontractor shall receive 50 per cent. of the proceeds of such sale, which additional amount will cover all costs for any increased length of haul."

[1] Under this contract the defendant could sell or not as it pleased. To entitle the plaintiff to recover under this provision of the contract two elements must concur: The material must be sold by the defendant and carted by the plaintiff. Plaintiff cannot recover thereunder for an alleged sale made by him, where the material was carted by him to the dump where he was required to cart the same under his general contract, and the defendant refused to permit the purchaser to have any of the material.

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[2] The defendant did not, by proper exceptions, raise questions of law for our determination herein; but, as these questions appear upon the face of the proceeding, we find that the defendant did not have a fair trial, and accordingly reverse the judgment and direct a new trial. Upon such a new trial the plaintiff may be able to show that material was sold by defendant and carted by plaintiff for which he has not been paid. The finding to that effect implied in the present verdict is reversed.

The judgment should be reversed, and a new trial granted, costs to abide the event. Settle order on notice.

(Supreme Court, Appellate Division, First Department. January 13, 1922.) 1. Partnership 258 (8)-Evidence held to show that surviving partner acquiesced in brokerage firm's guaranty of bonds sold.

In an action against a survivor on guaranty of bonds sold by brokerage firm, evidence held to show that defendant knew that his deceased partner gave the guaranties and that he acquiesced therein.

2. Partnership 247-Survivor held to have ratified deceased partner's guaranty of bonds sold by brokerage firm.

Where, after death of a partner in a brokerage firm, who in the firm name guaranteed bonds sold by the firm, demand was made for payment of defaulted coupons, and on two different occasions the guaranties were submitted for examination, and payments were made with exact knowledge of their contents, tenor, and effect, held, that the survivor ratified the guaranties, though in correspondence relating thereto he called them repurchase agreements, or wrote on the checks "for purchase of coupons." 3. Partnership 258 (8) —In suit against survivor on guaranty of bonds sold by firm, evidence as to payment of bonds held admissible.

In a suit against a survivor on a guaranty in the firm's name by his deceased partner of bonds bought and resold by the firm, wherein defendant claimed that the guaranty of all of such bonds as were sold with the firm's guaranty was unauthorized, evidence that defendant paid threefifths of the bonds guaranteed was admissible; there being no evidence tending to differentiate the bonds in suit from those paid.

Appeal from Appellate Term, First Department.

Action by Christopher C. Parnall against John Farson. From a determination of the Appellate Term, affirming a judgment of the Municipal Court in favor of plaintiff, defendant appeals. Affirmed. Argued before CLARKE, P. J., and LAUGHLIN, DOWLING, PAGE, and MERRELL, JJ.

Francis M. Scott, Walter H. Pollak, and Saul S. Myers, all of New York City, for appellant.

Davis, Wagner, Heater & Holton, of New York City (Charles R. Coulter, of New York City, of counsel, and Guy C. Heater, of New York City, on the brief), for respondent.

PAGE, J. The action is brought upon a guaranty, alleged to have been given by the firm, of which the appellant is the surviving partner,

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(192 N.Y.S.)

of payment of the principal and interest of a bond of $1,000 issued by the Eden Irrigation & Land Company.

An action upon a similar guaranty issued by the same firm to the First National Bank of Ann Arbor, Mich., resulted in a judgment for the plaintiff, which was affirmed by the Appellate Division, but was reversed and a new trial ordered by the Court of Appeals. First National Bank v. Farson, 178 App. Div. 135, 165 N. Y. Supp. 119; Id., 226 N. Y. 218, 123 N. E. 490. The law of this case is settled by that case, and the opinion of the Court of Appeals was before the learned justice of the Municipal Court when he tried the instant case.

The First National Bank Case held that "when a party takes a guaranty, to which the partnership name is signed, the burden of proof is upon him to show that the partner who signed such name had authority from one of the legitimate sources so to do," and stated that there were four sources: (1) Express or actual authorization; (2) implication from the course of business of the same kind generally; (3) implication from the course and conduct of the business as it was actually carried on by the particular partnership; (4) ratification and acquiescence. The trial was upon an agreed statement of facts and certain documentary evidence.

The instant case was fully tried, and the evidence adduced very materially amplifies the facts which were under consideration in the First National Bank Case. No attempt was made to prove the course of brokerage firms generally. The facts in the case as adduced upon the trial were as follows:

On January 1, 1906, John Farson, Sr., and his son, John Farson, Jr. (the appellant herein), formed a copartnership under the firm name of Farson, Son & Co. to continue and carry on the business of dealing in stocks and bonds, in which John Farson, Sr., had been engaged for many years. The appellant had one-quarter interest in the business, which was given to him by his father. The firm maintained offices in Chicago and New York. The firm, or the members thereof, owned a large and probably a controlling interest in the Eden Irrigation & Land Company (hereinafter referred to as the Eden Company). The cashier of the firm was the secretary and treasurer of the company, and other employees filled offices as directors or officers of the company. The firm purchased from the Eden Company $700,000 of their bonds, being the entire issue, and offered them for sale to their customers. A salesman of the firm solicited the plaintiff to purchase some of these bonds, stating that the bonds would be guaranteed by Farson, Son & Co., as to payment of principal and interest. The salesman had been duly authorized by John Farson, Sr., to make this offer. Plaintiff had dealt with Farson, Son & Co. before, and knew them to be financially responsible. Relying on this guaranty, the plaintiff bought five bonds, of the denomination of $1,000 each. On March 9, 1909, the bonds were delivered to the plaintiff. Attached to each bond was the written guaranty of Farson, Son & Co. of "prompt payment of both principal and interest" of the bond to which it was attached. The plaintiff paid for the bonds at the rate of 98 cents on the dollar and accrued interest.

John Farson, Sr., died in January, 1910, and the business was continued under the same firm name by his sons John and William; the latter having become a member of the firm July 1, 1909. The principal and interest on these bonds were payable at the office of Farson, Son & Co. in New York, which was managed by the appellant. The plaintiff collected the interest on these bonds by depositing the coupons of the bonds with his bank, and the same were paid in due course until January 1, 1913.

On December 31, 1912, Farson, Son & Co. notified the plaintiff that the Eden Company was without available funds to pay maturing interest and principal items falling due January 1, 1913, and requested the plaintiff to address any communications to the Chicago office. The plaintiff on January 4, 1913, wrote to the Chicago office of the firm that, inasmuch as the five $1,000 bonds held by him were accompanied by the firm's guaranty of prompt payment of principal and interest, he would be pleased to have their remittance at their early convenience. To this Farson, Son & Co. replied, requesting plaintiff to forward to them the coupons, either directly or through plaintiff's bank, together with the guaranty, so that they could examine the same. The plaintiff complied with this request, and after examination of the guaranty the firm on January 13, 1913, paid the coupons due on January 1, 1913, and returned the guaranty to the plaintiff. In the letter Farson, Son & Co. refer to the guaranty as "repurchasing agreements," and in the subsequent correspondence the contract of guaranty is so denominated.

The coupons due July 1, 1913, and January 1, 1914, were paid by Farson, Son & Co. The coupons due July 1, 1914, were not paid, and no response was made to a demand for payment. Farson, Son & Co. again asked to have the guaranty forwarded, with which request plaintiff complied; and thereafter the coupons were paid by Farson, Son & Co., until July 1, 1916. When these coupons became due plaintiff wrote to Farson, Son & Co., demanding payment, to which reply was made from the New York office that

"Our Mr. John Farson [the defendant], who is in touch with this situation, is out of town at the present time, but upon his return your letter will be referred to him for attention."

Thereafter Farson, Son & Co. wrote that there were 90 days' grace before the coupons became due, and stated further that—

"We do not consider the present firm of Farson, Son & Co. to have any guarantee on the bonds you mention."

Plaintiff replied that he had on two occasions sent the guaranty to them for their inspection. On September 30, 1916, plaintiff wrote Farson, Son & Co. at their New York office that the 90 days' grace expired October 1, and requested a remittance at an early date, and on October 4 Farson, Son & Co., sent from their New York office a check for the amount due on these coupons to the plaintiff. No further payments have been made.

There was evidence that John Farson, Sr., told his son, in the presence of the salesman who sold these bonds, that guaranties had been

(192 N.Y.S.)

given on some of these bonds, and when John Farson, Jr., was asked whether he would deny that he had been informed of these guaranties by his father or his brother as early as October 31, 1908, he replied that he would neither affirm nor deny it. The firm issued a circular in which they set forth in great detail the advantages of the investment in the bonds of the Eden Company, which they owned and offered for sale, and in this circular the first of the "strong points" was stated to be:

"(1) The principal and interest of these securities will be unconditionally guaranteed."

The salesman testified that he sold the bonds without the guaranty at 90, but with the guaranty he obtained par. Out of a total issue of $700,000, the firm guaranteed $200,000, and of these all but $80,000 have been paid for by the firm.

[1] In my opinion the knowledge of John Farson, Jr., that these guaranties of the Eden Company bonds were being given, and that he acquiesced therein, can be very readily inferred from the evidence. The guaranties were given to further the business of the firm, and not for the benefit of the Eden Company. The firm named a higher rate for the bonds sold with a guaranty than for those sold without. Thus it would appear that John Farson, Sr., had actual authority to give. the guaranty in the firm name.

[2] However that may be, John Farson, Jr., ratified the act of guaranty, when, after his father's death, the demand was made for the payment of the defaulted coupons, and on two different occasions the guaranties were submitted for examination, and payments made by the firm of John Farson, Son & Co. These payments were made with exact knowledge of the contents, tenor, and effect of the written guaranties. That, in the correspondence, Farson called them repurchase agreements, or wrote on the checks "purchase Eden cpns." did not change the character of the instruments, nor the legal effect of the payments pursuant to demand made upon the instruments. But this merely demonstrates a shifty attempt to escape a known liability.

[3] The defendant predicates error on the admission of testimony, showing that the defendant had paid three-fifths of all the bonds issued with a guaranty. Ordinarily a settlement by one party of claims of third persons has no relevancy or materiality in an action. But in this case the defendant was seeking to escape liability on the ground that the guaranty of the entire $200,000 of bonds was unauthorized. In my opinion, the fact that the defendant had paid $120,000 of these guaranteed bonds had a very material bearing on the issues in this action. No evidence was given tending to differentiate the bonds in suit from those paid. We have, then, not alone the payment of the coupons on the bonds in suit with full knowledge, and in affirmation, of the guaranty, but also the payment of the principal and interest of three-fifths of all the guaranteed bonds.

Therefore, under the law of the case as laid down by the Court of Appeals in First National Bank v. Farson, supra, the judgment was correctly rendered for the plaintiff, and the determination should be affirmed, with costs. All concur.