National Bank of Deposit v. Rogers

This action was commenced against John L. Sardy and John Bard Rogers, composing the firm of Sardy, Coles & Co., and Nathaniel P. Rogers. J. B. Rogers demurred to the original. complaint, his demurrer was sustained, and he disappeared from the action. Pending suit, Nathaniel P. Rogers died, and the executors of his will were substituted as defendants in his place.

When the cause was before us on a former appeal ( 1 App. Div. 623 , 37 N. Y. Supp. 365 ), it came up as an action in replevin, in which the plaintiff had recovered a judgment. That judgment was reversed, for the reason that, under the proofs as they then appeared, the plaintiff had neither the legal title to, nor the technical legal ■ right to, possession as pledgee of the merchandise, the subject of the action. In discussing the case as it was then made, it was said in the opinion of the court that, at the utmost and upon the conceded facts, the plaintiff acquired only an equitable lien on the merchandise. After the judgment of reversal was entered, the plaintiff applied for leave to amend the complaint, • which was granted, and an amended pleading was served which transformed the action into one in equity, bringing within its scope, and for administration by the court, all the equities of the parties, arising not only out of the original transaction, but also those springing from the acts and dealings of the plaintiff with respect to the merchandise, and the proceeds of some of it, after the institution of the action and in execution of the writ of replevin. The defendants answered the amended complaint, the cause went to trial, and resulted in another judgment in favor of the plaintiff, granting it, upon an adjustment of all the equities, the relief it asked. In the amended complaint, the facts necessary to the assertion and establishment of an equitable lien are stated, unless that-complaint is fatally defective in particulars, which will be adverted to hereafter.

There can be no doubt, upon the proven facts, that the plaintiff was entitled, upon the original transaction, to an equitable lien; nor do we think it disputable that, upon the uncontradicted facts

The firm of Sardy, Coles & Co., consisting of Mr. Sardy and John Bard Rogers, imported from Europe certain merchandise, which on the 31st of August, 1891, was in the city of New York in the possession of the United States customs authorities, and held by them subject to the payment of duties. The evidences of title, viz. the bills ■of lading and the consular invoices, were made out in the name of, and were held by, the firm of Perry, Ryar & Co., custom-house brokers, in whose name the importation had been made by Sardy, Coles & Go. The last-named firm, not having the money with which to pay the import duties, applied to the president of the plaintiff for a loan to enable them to do so. The application was made by Mr. Sardy, accompanied by Mr. Ryar, of the firm of Perry, Ryar & Co. Sardy told the president of the plaintiff that he had bought the goods ■abroad, and Mr. Ryar confirmed that remark, and stated that his firm had no interest in the goods other than to collect the duties and to make the entries at the custom house. Thereupon the sum of $3,000 was loaned by the plaintiff to Sardy, Coles & Co., with the knowledge of Perry, Ryar & Co., and a promissory note was made by Sardy, Coles & Co., and delivered to the plaintiff, which note was dated August 31, 1891, and was for the sum of $3,000, payable on demand, with interest at the rate of 6 per cent.; and it recited that the makers had deposited with the bank, as collateral security for its payment, certain merchandise (being the merchandise referred to in this action); and it also recited that the makers “do hereby give the said National Bank of Deposit a lien for all of the said demands, upon all property left with the said National Bank of Deposit, «■ an¿ hereby authorize said bank, on the nonperformance of this promise, or the nonpayment of any of the demands aforesaid, or failure to furnish further security as hereafter agreed, to sell the whole or any part of said collaterals,” etc. The agreement for security contained in this note seems to have been considered as a bill ■of sale. At the same time, Sardy, Coles & Co. delivered to the plain

“Received of the National Bank of Deposit the following goods and merchandise specified in the bill of sale, dated August 31st, 1801, herewith attached; and in consideration thereof we thereby agree to hold said goods in trust for said bank, and, as their property, to sell the same for their account; and further'agree, in case of sale, to hand the proceeds to them to apply against any indebtedness to said bank on our account, under loans on our account, and: for payment of any indebtedness of ours to said bank. The National Bank of Deposit may at any time cancel this trust, and take possession of said goods or the proceeds that may be found; and in ihe event of any suspension or failure or assignment for benefit of creditors on our part, or of the nonfulfillment of any obligations, or of the nonpayment at maturity of any indebtedness made by us under said consignment by the National Bank of Deposit on our account, or of any indebtedness to said bank, all obligations, acceptances, indebtedness, and liabilities whatever shall thereupon (with or without notice) mature and become due and ’payable. The said goods while in our possession shall be fully insured against loss by fire.”

The merchandise was taken from the custom house, the duties having been paid with a part of the money borrowed on this transaction from the plaintiff. After the goods came into the possession of Sardy, Coles & Co., a portion thereof was sold. Shortly thereafter, Sardy, Coles & Co. made an assignment to Nathaniel P. Rogers of a stock ,of merchandise and their accounts, to secure Mr. Rogers for advances of money he had made to that firm. Under that assignment, Mr. Rogers took possession of the merchandise, including the unsold portion covered by the trust receipt, and he also collected the amounts due on the portion of that merchandise that had been sold-

Thus far the relations existing between the parties are.very clearly defined. The bank had advanced its money on a specific agreement that it should have certain merchandise as security. That merchandise was to come into the possession of the borrower of the money; it was to be received and sold on account of the lender; the actual possession was to be given to the latter upon its demand. Mr. Nathaniel P. Rogers, when he took "possession of some of the merchandise under the assignment to him, and collected the proceeds of sale of the other portion, stood in no better or other or different relation to the subject than Sardy, Coles & Co. maintained. He had actual notice of the plaintiff’s claim to the property. In that situation, the plaintiff, not being entitled to gain possession of the goods by an action of replevin, as was heretofore decided, was authorized to apply to a court of equity to establish and to enforce its right , in and to the goods by way of equitable lien, and to have such disposition made of them as equity and justice required. An equitable lien must be judicially established and declared. It must be found to exist, and in its very nature is a right, not recognized by law, to have the property or its avails applied as required by some agreement or transaction binding in conscience upon the parties to it. We have in the case, therefore, the cardinal facts that the sum of $3,000 was advanced; an agreement for a lien upon certain merchandise, from which reimbursement of the loan was to be made; an agreement that the goods should be held or disposed of solely for the benefit of the lender or delivered to it on demand. We have no

The whole of this transaction, in its origin, indicates, not only the intention of the parties that the lien should exist, but its form was such that, when the goods came into the possession of Sardy, Coles & Co., the plaintiff’s right immediately attached. Sardy, Coles & Co. did not have the legal title to the merchandise. That was in Perry, Byar & Co. That firm, in effect, transferred and delivered to Sardy, Coles & Co. the possession of that merchandise. When it thus came in the possession of Sardy, Coles & Co., they took it affected in equity by all the terms of the agreement contained in the provision for security incorporated in, or connected with, the note and in the trust receipt. The plaintiff’s equity is therefore so clearly established that it does not admit of doubt or discussion.

We think it quite clear that, under the agreement of the parties, the court could have decreed that Sardy, Coles & Co., upon the demand of the plaintiff, should deliver to it the possession of this merchandise, to be held as security to the note; and, that being so, the court had jurisdiction to declare what the rights of the plaintiff in and to that merchandise or its proceeds are, and to settle all matters in controversy between the parties respecting the same. With that jurisdiction and power, the plaintiff has brought before the court in its amended complaint certain matters showing a change in its relation to the property, operated by the institution of this action as one in replevin and the disposition of a certain portion of the merchandise pending the action. It sets up in the amended complaint that a portion of the goods and chattels were taken by the sheriff of the city and county of New York, and handed over to the plaintiff, upon its giving an undertaking in replevin; that “the goods were never rebonded by the sheriff, and that the defendants still hold the bond of the plaintiff conditioned for the return of the goods or their value”; and it further appears in the proofs that of the goods taken by the sheriff, and delivered to the plaintiff, on the writ, a certain portion was sold by the plaintiff, and it now retains the proceeds. Although the case came before the court at the last trial in a most awkward and inartificial manner, nevertheless, upon the proofs, the equities of the plaintiff were fully made out, and its right to relief on those proofs was fully established. The curious performance of turning the replevin suit into a bill in equity was acquiesced in. The trial justice was justified in the decision he made. He finds, in substance, the facts of the original transaction, and properly stated the rights of the parties thereunder, namely, that there was an actual agreement between the plaintiff and Sardy, Coles & Co. to pledge the identical goods, the subject of the action; that they received those goods, and became possessed of them in trust for the plaintiff; that as to the goods the subject of the agreement to pledge, or the "proceeds of any goods that were affected by

But the defendants insist that material proof upon which the decree was based was inadmissible under the pleadings, and that the court below was not justified in making its adjudication upon that proof, because of insufficiency of the allegations of the amended complaint. The point is legitimately in the case. It was raised at the beginning, and was insisted upon at various stages of the trial, and cannot be ignored. Before any evidence was offered, counsel for the defendants moved to dismiss the complaint on the specific grounds that the plaintiff failed to state therein that anything was due from the firm of Sardy, Coles & Co. to the plaintiff; that there was no allegation of any indebtedness whatever of that firm to the plaintiff; that the complaint failed to state that the goods on which the plaintiff claimed an equitable lien ever became the goods of Sardy, Coles & Co., and therefore failed to show that the bank ever obtained a lien on any goods; and that it was impossible that an effectual judgment should be given- in the case in the absence of John Bard Rogers, who was a member of the firm of Sardy, Coles & Co. The court reserved its decision on that motion, directed the trial to proceed, and stated that, in case the motion should be denied, an exception would be noted for the defendants, and, if granted, the plaintiff would have an exception. At a subsequent stage of the case, when evidence was offered of the note being unpaid and enforceable, the objection to the admission of the testimony was renewed, and at the close of the trial a motion to dismiss was again made on substantially the same grounds as at first, and again the court reserved its decision. Thereupon counsel for the plaintiff moved to amend the pleadings to conform to the proof "in respect to the allegation that Sardy, Coles & Co. owned the goods, and that the debt caused by the borrowing of the. money by Sardy, Coles & Co. from the bank was not repaid, and that the goods had come into the possession of Sardy, Coles & Co.” Objection was taken to this

If the complaint is fatally defective for the want of-the allegations referred to, the defendants’ counsel is entirely right in the criticism he makes upon the conduct of the trial and the action of the court respecting an amendment. It was not competent for the court to amend the complaint to conform to the proofs, under the conditions of this record. Rutty v. Jar Co., 52 Hun, 494 , 495, 6 N, Y. Supp. 23 ; Beard v. Tilghman, 66 Hun, 15 , 20. N. Y. Supp. 736. The defendants had fairly and honestly challenged the sufficiency of this complaint from the beginning, and the court had taken proof subject to tile decision of the motion to dismiss the complaint, and when the case was finally submitted that was reiterated. The defendants were entitled to stand upon the case as it was made, and to have their motion disposed of, without proofs conditionally admitted being used as the basis of an amendment to conform the pleadings to proofs. But we think the complaint was not radically defective in the respects claimed by the learned counsel for the appellants, and that it was not necessary for the maintenance of the action that there should be a direct and positive allegation that the $3,000 note was actually due or still unpaid, and that the indebted-, ness of Sardy, Coles & Co. to the plaintiff for that amount was- still outstanding. Hence we consider the case as if the defendants’ objections and motions had been overruled, and exceptions duly taken, and shall, disregard the amendment allowed to conform the pleading to the proof, holding that such action was not justified, and that no amendment of the amended complaint has been made. It is unquestionably a positive rule that whatever facts are material to the support of an action must be pleaded and proven. As, where an action is on contract for the payment of money, nonpayment is a material element of the plaintiff’s cause of action. Lent v. Railway Co., 130 N. Y. 504 , 29 N. E. 988 ; Cochran v. Reich, 91 Hun, 440 , 36 N. Y. Supp. 233 ; Hicks-Alixanian v. Walton, 14 App. Div. 200 , 43 N. Y. Supp. 541 . But the allegations here were sufficient to entitle the plaintiff to the relief it asked respecting the merchandise and its application as security to the note. The plaintiff was entitled to some" relief, whether a debt was due in the sense of being payable or whether it was merely owing. It was enough to show in the

It was further objected to the complaint that it did not allege that the goods on which the plaintiff claimed the lien ever became the goods of Sardy, Coles & Co. There is no such distinct allega-' tian in the complaint, nor was it necessary. The instruments constituting the relations between the parties were annexed to the amended complaint, and there is an allegation in its third paragraph that Sardy, Coles & Co. acquired the possession of the goods, paying the duties with the moneys advanced by the plaintiff, and taking them from the custom house, and holding them pursuant to the terms of the trust agreement. From these facts, the court could determine the status of Sardy, Coles & Co. as to the goodst and declare what equitable duty or obligation was imposed upon that firm towards the plaintiff with reference to the goods.

A further ground of nonsuit was urged, and that is that John B.

The judgment was properly rendered on the pleadings without any amendment and the proofs, and should therefore be affirmed, with costs. All concur, except McLAUGHLIN, J., dissenting.

I dissent. The defendants’ motion, made at

the opening of the trial, to dismiss the complaint, should have been granted, and they could not be deprived, without their consent or acquiescence, of their exception to the refusal to dismiss, by the court’s subsequently conforming the pleadings to the proof. The complaint should have been dismissed because the facts therein stated did not constitute a cause of action against the defendants. The Code provides (section 481) that a complaint must contain a plain and concise statement of the facts constituting the cause of action. This provision is a wise one. The purpose to be accomplished by it is manifestly to apprise the defendant in advance of the trial of what the plaintiff intends to prove, in order that a proper defense may be made, and it necessarily follows that whatever facts are necessary to be proven upon the trial to entitle the plaintiff to recover must be alleged in the complaint. Otherwise there is no meaning to the section, and a complaint serves no useful purpose. Here the complaint did not state a cause of action, for the reason that there was no allegation in it, or the statement of any fact from which an allegation to that effect could be inferred, that the firm of Sardy, Coles & Co. was indebted to the plaintiff in any sum whatever. All that the complaint stated upon the subject of an indebtedness was that “on or about the 31st day of August, 1891, this plaintiff loaned to the defendants John L. Sardy and John Bard Rogers, composing the co-partnership firm of Sardy, Coles & Co., the sum of $3,000, for which said firm gave its demand note secured by its pledge, or agreement to make a pledge, to this plaintiff,” of certain described goods. It is true, as stated in the prevailing opinion, that a copy of the note referred to was annexed to the complaint; but there was no allegation that the plaintiff was then owner or holder of the note, or that it had not been paid, or that the firm of Sardy, Coles & Co. was, at the time the action was brought, indebted to the plaintiff in any sum whatever. If this were an action at law to recover the amount of the note, it could not be seriously contended but that the complaint would have been fatally defective, in that it failed to allege nonpayment. In such case the failure to pay according to the terms of the contract would be the basis of plaintiff’s right to recover. Lent v. Railroad Co., 130 N. Y. 504 , 29 N. E. 988 ; Witherhead v. Allen, 4 Abb. Dec. 626; Van Giesen v. Van Giesen, 10 N. Y. 316 .

“It does not admit of controversy that, upon an original contract for the payment of money, nonpayment is the fact which constitutes the breach of the contract, and is the essence of the cause of action, and, being such within the rule of the Code, it should be alleged in the complaint.”

And in Witherhead v. Alien, supra:

< “When the action is founded upon a contract obligation or duty, the very gist and essence of the cause of action is the breach thereof by the defendant, and, unless the breach is alleged, no cause of action is shown.”

And in-Van Griesen v. Van Giesen, supra:

“The material allegations of the complaint in this case are the making by the defendant of the promissory note, the transfer of it to the plaintiff, and the nonpayment by the defendant. Bach of them is material, for, without the concurrence of all of them, the complaint would not show a cause of action.”

Manifestly, not only under the plain and obvious meaning of the section of the Code referred to, but under the authorities cited, in an action to recover upon the note itself, it would be necessary for the plaintiff to allege and prove nonpayment. If I am right in this conclusion, then it necessarily follows, as it seems to me, in an equitable action brought to establish a pledge of personal property given to secure payment of the note and to foreclose the pledge, that the fact of nonpayment of the note must be alleged in the complaint and proved upon the trial. It cannot be otherwise, because the breach of the contract to pay the note is of the essence of the cause of action. It is the basis of plaintiff’s right to proceed in equity. It is the fact which gives it standing in court. Payment of the note would, ipso facto, satisfy the pledge, and destroy any right which the plaintiff theretofore had to proceed in equity. It follows, therefore, that nonpayment of the note must be alleged in the complaint, and, the plaintiff having failed to allege that fact, the complaint should have been dismissed. Ryan v. Holliday, 110 Cal. 335 , 42 Pac. 891 . It is unnecessary to pass upon the other questions raised.

For these reasons I cannot concur in the opinion of Mr. Justice PATTERSON. I think judgment should be reversed, and a new trial granted, with costs to the appellant to abide the event.