New York County NyArchives Court.....Chittenden, Horace Vs. Charles Morris 1889
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Source: Reports Of Cases - New York
Written: 1889

First Department, May Term, 1889.

HORACE H. CHITTENDEN, as Assignee of A. S. HATCH & CO., Appellants, v. CHARLES 
O. MORRIS and Others, Respondents.

Deposit made by way of securing the execution of an agreement for the sale of 
bonds, to be withdrawn only by the vendor and vendee jointly — by whom and how 
it may be withdrawn.

Where money has been deposited under an agreement by which the depositor, 
assuming himself to be obligated to deliver certain bonds, and promising to 
perform the contract for the sale thereof, and asking for additional time for 
that purpose, has obtained such time in consideration of the deposit being made 
(by the terms of which deposit the money was to be repaid to the depositor and 
the party entitled to the delivery of such bonds jointly), the  depositor 
becoming insolvent, his assignor is not in a position to maintain an action for 
the recovery of such deposit upon the ground that the original contract for the 
sale and delivery of the bonds was in violation of the statute of frauds and was 
not binding upon such depositor.

A deposit made under such circumstances cannot be afterwards recovered by the 
party making it, when that party alone has wholly failed to comply with the 
terms of the agreement under which the deposit was made.

Such deposit does not rest upon the illegal contract made for the delivery of 
the bonds, but upon the agreement made at the time of such deposit for the 
benefit of the parties claiming the right to the delivery of such bonds.

The court has no power to direct the depositary to pay over the deposit to the 
assignee of the depositor, while the other party in interest refuses to consent 
to the delivery thereof to him.

Such deposit can only be withdrawn by the joint assent and joint acts of both 
parties, or upon the fulfillment by the depositor of the promise made on his 
part for the delivery of the bonds.

Appeal by the plaintiff from a judgment, rendered at the New York Special Term, 
dismissing the complaint upon the merits, which judgment was entered in the 
office of the clerk of the county of New York on the 10th day of July, 1888.

The action was brought demanding judgment that the individual defendants be 
required to join with the plaintiff in an order upon the defendant, the Farmers' 
Loan and Trust Company, for the payment to the plaintiff by said Farmers' Loan 
and Trust Company of the sum of $5,000, deposited by plaintiff's assignors with 
said Farmers' Loan and Trust Company, and that the Farmers' Loan and Trust 
Company be decreed to pay to the plaintiff the sum of $5,000, with accrued 
interest.

James M. Townsend, Jr., for the appellants. 

George B. Wellington, for the respondents. 

Daniels, J.:

The fact was proved upon the trial that Gustavus Maas, on the 24-th of 
December,' 1886, by a memorandum which he executed, sold to White, Morris & Co. 
$20,000 Troy and Boston seconds, at seventy-five cents. On the same day, and by 
a similar instrument, he sold to the same parties $30,000 of the same 
securities. The memorandum subscribed by him was the same in each instance, with 
the exception of the amount. That for the $30,000 is in the following words and 
figures:

Sold White, Morris & Co., $30,000 Troy & Boston 2nd, 75 reg. Dec. 24, 1886. G. 
MAAS.

By these memoranda, as they were explained by the evidence, Maas agreed to sell 
and deliver to White, Morris & Co., who were defendants in the action, these 
bonds for the designated price of seventy-five per cent, and that was sufficient 
to comply with the statute requiring the agreement, or a memorandum of it, to be 
in writing and subscribed by the party to be charged. The evidence proving the 
contracts of sale and the execution of these memoranda was objected to by the 
plaintiff, but the objection was overruled and the proof was received by the 
court, to which the plaintiff excepted. 

And it is quite clear that neither of these exceptions was well taken, or the 
evidence which was given had a direct tendency to establish the fact of a legal 
contract for the sale of the bonds, and to explain the abbreviations contained 
in the memoranda. It was not proved by mere declarations or conversations 
occurring between other parties, in the absence of the plaintiff's assignors; 
but it was evidence given to prove the nature and character of the transaction 
itself, which took place between the parties, and the manner in which it was 
brought about and completed.

The bonds were not delivered to the purchasers in performance of the terms of 
these memoranda, and on the 29th of December, 1886, one of the members of the 
firm of A. S. Hatch & Co., who are the plaintiff's assignors, at the instance or 
upon the information of Mr. Tobey, who was a member of the firm of Tobey & Kirk, 
applied to the purchasers of the bonds named in these memoranda for further time 
for their delivery. According to his own and further evidence in the case, his 
firm had contracted to sell these identical bonds, but not by any instrument in 
writing, or for any part payment made upon the purchase-price; but the persons 
to whom the firm of Hatch & Co., in this manner, agreed to sell the bonds, had, 
either directly or indirectly, empowered Maas to enter into the contracts of 
sales he made with the firm of White, Morris & Co., and the firm of Hatch & Co. 
had received the information that when the bonds were to be delivered this firm 
of White, Morris & Co. was the party who should receive them. The understanding 
of the member of their firm, with which the witness Hatch is stated to have held 
his conversation, the proof of which was clearly admissible, was that the firm 
of White, Morris & Co. had purchased the bonds of the firm of Hatch & Co., 
which, of course, could only have been done by the fact existing that Maas, who 
made the memoranda for the sales of the bonds, was authorized and empowered to 
act for the firm of Hatch & Co. in agreeing as he did for their sale. But 
whether such a relation, in fact, existed between himself and Hatch & Co. was 
not proven in the case, otherwise than it might be inferred from the 
conversations stated to have taken place.

In this conversation between the witness Hatch and Mr. Blackwell, of the firm of 
White, Morris & Co., Mr. Hatch stated that Blackwell said: "The firm had bought 
the bonds of us ; that is what it amounted to, they bought the bonds of somebody 
else, and so on; and, then, he finally came around to the statement that they 
bought them of us. I presume that it was before I told him that I would deliver 
the bonds that he claimed he bought them of us; I went around there to make 
arrangements with respect to the delivery of the bonds, of $50,000 Troy and 
Boston bonds. I understood that Tobey & Kirk had sold the bonds to somebody, who 
had sold them, or a similar amount, to White, Morris & Co." He further added 
that he had been informed previously by Mr. Tobey that these very bonds had been 
sold to White, Morris & Co; that is, that in a roundabout way they had got to 
White, Morris & Co. The firm of Hatch & Co. was not in a condition at the time 
of the conversation to deliver these bonds to the purchasers under these 
memoranda of agreement, and an application was made by this member of the firm 
of Hatch & Co. to them for further time to deliver the bonds ; and that is 
stated to have been given to that firm, on the agreement then made to make a 
deposit of ten per cent of the amount of the purchase-price with the Farmer's 
Loan and Trust Company, another defendant in this action. The delay which Hatch 
& Co. applied for is stated to have been a period of two or three weeks, at the 
expiration of which they were to deliver the bonds. And one of the firm of Hatch 
& Co., and also of White, Morris & Co., was a member of the Stock Exchange, one 
of whose rules provided and declared:

Section 1. In any contract, either party may call at any time during the 
continuance of the same for a mutual deposit of ten per cent. And whenever the 
market-price of the securities shall change way below five per cent, either 
party may call upon the other for a deposit sufficient to restore the impaired 
margin, and this may be repeated as often as the margin may be so reduced.

The firm of White, Morris & Co. had complied with this rule or section by making 
the deposit, on their part, of the sum of $5,000 with the Farmers' Loan and 
Trust Company, pursuant to it To obtain the extension which Mr. Hatch applied 
for from the firm of White, Morris & Co., the firm of Hatch & Co. were required 
to make a like deposit of ten per cent on the price with the Farmers' Loan and 
Trust Company. They did make that deposit on the day when this extension was 
agreed to be given, and received from the Farmers' Loan and Trust Company its 
certificate in the following language:

"This is to certify that A. S. Hatch & Co., has deposited with this company five 
thousand dollars, payable in current funds, on one day's notice, to them and 
White, Morris & Co. jointly, upon the surrender of this certificate (which is 
assignable upon the books of the company), with interest at the rate of two per 
cent per annum, provided the deposit is not disturbed until after the expiration 
of three days.

"$5,000.         (Sgd.)     "WM. H. LEUPP,
                                "Secretary.
                 (Sgd.)     "T. F. BARNETT,
                                "Cashier.


The firm of Hatch & Co. after that failed to deliver these bonds, became 
insolvent, and made a general assignment to the plaintiff in this action, and he 
brought the suit to recover this sum of $5,000, in this manner placed on deposit 
with the Farmers' Loan and Trust Company. The right to maintain the action has 
been placed upon the ground that the contract of Hatch & Co., not being in 
writing, and no part of the purchase-price having been paid, was void, and for 
that reason he, as assignee, was entitled to the return of this sum of money. 
And while the position might be well taken that the contract of Hatch & Co. to 
deliver the bonds was not binding upon them under the statute of frauds, still 
the money was deposited with the Farmers' Loan and Trust Company under an 
agreement made between these two different firms, for a consideration of which 
the firm of Hatch & Co. had the benefit. They assumed to be obligated to deliver 
these bonds to the persons who had purchased them from Gustavus Maas, and 
promised that they, in his place, would perform the contracts of sale of which 
memoranda had been made in writing. But because of the delay or inability of the 
party from whom the bonds were to be received by Hatch & Co., they were not in a 
condition to deliver them and required additional time for that purpose, and it 
was in consequence of the extension of that time and for that consideration that 
they made this deposit with the Farmers' Loan and Trust Company; and by the 
contract which the company then entered into, the money was placed upon deposit 
only to be repaid to the two firms of Hatch & Co. and White, Morris & Co., 
jointly.

This was an entirely legal contract between the Farmers' Loan and Trust Company 
and the firm depositing the money now in controversy. It was placed in the hands 
of the depositary under this certificate, by which the obligation was created of 
paying over the money on one day's notice to the firms of White, Morris & Co. 
and A. S. Hatch & Co., jointly. There was no arrangement or agreement by which 
the money should be paid, or should be demanded by Hatch & Co., or their 
assignee, in case they failed to fulfill what they had promised to do by 
delivering the bonds to the purchasers in the memoranda of agreement made by 
Maas. The deposit appears to have been made by way of security, that Hatch & Co. 
should deliver the bonds at the expiration of the time which was extended to 
them for this purpose at their request. And each party made the same deposit 
with the trust company, that the moneys deposited should be held by way of 
security for the benefit of the party entitled to the fulfillment of the 
contracts of sale, and, in no other manner, in default of their performance. 
After the parties placed their funds in this position, and, by means of this 
agreement, which entirely declared and regulated their mutual rights, the court 
has no power to change the contract and to require either to do what he has not 
agreed should be done, or to act contrary to the agreement itself and join with 
the other for withdrawing the deposit, when the firm in whose interest the 
withdrawal has been claimed has wholly failed to fulfill the terms made by it 
for the future delivery of the bonds. It is not sufficient to maintain the 
plaintiff's action, that his assignors did not become bound by their promise to 
deliver the bonds, or for the performance of the agreement made by Maas. The 
cases, accordingly, of Ackley v. Parmenter (98 N. Y., 425), and White v. Rintoul 
(108 id., 222), are not decisive or controlling over this action. For in those 
cases no more than the fact of the promise or agreement itself, which had taken 
place between the parties, was before the court for examination or decision. 
Neither is the case of Dung v. Parker (52 N. Y., 494), applicable to the action. 
Tor that has proceeded no further than to hold that an agreement within the 
statute of frauds, not in writing, and upon which no part of the purchase-price 
has been paid, and entirely unperformed, is void between the parties. Neither do 
the cases of Noakes v. Morey (30 Ind., 103), or Howe v. Hayward (108 Mass., 54), 
decide anything controlling over this controversy. For in neither has it been 
held, nor was anything said from which that could be inferred to be the opinion 
of the court, that a deposit made in this manner could be recovered afterwards 
by the party making it, when that party alone had wholly failed to comply with 
the terms on which the deposit was made. In the case of Howe v. Hay ward 
(supra), which has considered the subject more directly than either of the 
others, a verbal agreement had been made for the sale of the stock of a livery 
stable for the price of $2,500, and a deposit of $200 had been made to secure 
the performance of the agreement. The action there was not brought to recover 
the deposit, but it was for damages for a failure to perform the agreement. And 
what the court held was, that the simple deposit of the sum of $200 was not a 
payment on the contract of sale and did not take it out of the statute of 
frauds, and for that reason the contract, not being in writing, afforded no 
foundation for an action for damages. This case is entirely different from that 
or any other action which has been found to have been favorably disposed of by 
the courts. It is not dependent upon the verbal promise made by Hatch & Co. to 
deliver the bonds, but upon an additional agreement made for the benefit of that 
firm, and by that agreement it was given time for the future delivery of the 
bonds, which were expected to pass through its hands, on condition that this 
deposit of $5,000 should be made with the trust company, and made upon the terms 
exhibited by the certificate issued when the deposit was made. It was a valid 
agreement on the part of the company, and met the understanding and expectations 
of both parties leading to the deposit, and that was that the money for the 
security of White, Morris & Co. should be placed in the possession of the 
Farmers' Loan and Trust Company, only to be repaid to Hatch & Co., when that 
should be assented to by the joint action of Hatch & Co. and the firm of White, 
Morris & Co. This was a separate and distinct agreement made between these two 
different firms, and carried out by a legal obligation executed and delivered 
declaratory of the liability of the trust company at the time when the money was 
received. The parties in this manner made their own agreement, and there seems 
to be no legal principle upon which the court can change it and hold their 
rights to be different from those which they have declared. In a word, the court 
has no authority to direct that the trust company shall pay over this money to 
the assignee of Hatch & Co., upon their sole and separate demand, when White, 
Morris & Co. object to that being done, and refuse, as they do, to authorize 
this payment. The misfortune of the plaintiff, if it is to be so considered, is 
that the contract which was entered into between these parties for the 
consideration created by this extension of time, is against the claim made by 
him as the foundation of his action. It was not the result of any mistake, or of 
any fraud perpetrated on his assignors, but it was their deliberate agreement, 
under standingly entered into, that, this money should be placed in the 
possession of the trust company and should not be withdrawn from the possession 
of that company, except by the joint assent or joint action of both Hatch & Co. 
and White, Morris & Co. That event has not taken place, neither has any state of 
facts arisen, as they are not in default, by which White, Morris & Co. can be 
obligated under the agreement which was made to give this assent or confer this 
authority. The right of Hatch & Co. to a return of the money depended upon a 
fulfillment of their promise for the delivery of these bonds. They placed the 
money subject to that obligation, and the additional circumstance that before 
the trust company should pay it over it should also have the assent or authority 
to that act of White, Morris & Co. The event has not arisen under which the 
right can be asserted to withdraw this money, as the right to it has been 
clearly defined and expressed by the agreement which was made, and which the 
plaintiff's assignors failed to perform. There appears to be no ground upon 
which the court can hold, in violation of the obligations which were created, 
that this money should be paid over to the plaintiff, or that the firm of White, 
Morris & Co. shall concede their consent or authority when they have, at no time 
and under no circumstances which have transpired, agreed to allow this money to 
be paid over to Hatch & Co. or their assignee.

The same result also follows from the principle that the party who has, in part, 
performed a contract void under the statute, which the other party is ready and 
willing to perform, cannot, on the so__ ground of his or their own default, 
recover for what has been paid or done in the way of part performance. The 
principle applicable to the case seems to be that the party able, willing and 
ready to perform cannot be compelled to refund to the party who bases his action 
entirely on his own inability or refusal further to perform on his part. If the 
party receiving the part performance refuses to perform the residue of the 
agreement, then the law will infer a promise on his part to return what he may 
have received. 

But neither that promise nor any equivalent obligation will be inferred in favor 
of the party whose demand rests wholly on his own default in the way of 
completing what has, in fact, been partly done by him. The soundness of this 
rule was recognized in Baldwin v. Palmer (10 N. Y., 232), and it was followed in 
King v. Brown (2 Hill, 485), where it was said by Nelson, Ch. J., that "the 
contract being void and incapable of enforcement in a court of law, the party 
paying the money or rendering the service in pursuance thereof, may treat it as 
a nullity and recover the money or value of the services rendered under the 
common counts. This is the universal rule in cases where the contract is void 
for any cause not illegal, if the defendant be in default." (Id., 487.) And also 
in Lockwood v. Barnes (3 Hill, 128), where it was said: "The party who refuses 
to go on with the contract after having derived a benefit by a part performance 
must pay for what he has received." (Id. 130.) This rule was also observed in 
Sovereign v. Ortmann (47 Mich., 184); Bennett v. Phelps (12 Minn., 326); Clancey 
v. Craine (2 Dev. Eq., 363); and in Abbott v. Draper (4 Denio 51, 53), which is 
a direct authority against the plaintiff. It has likewise been applied to a 
similar class of cases arising under statutes declaring that no action shall be 
maintained on an unwritten contract in Congdon v. Perry (13 Gray, 3); Coughlin 
v. Knowles (7 Metc., 57), and other authorities therein referred to.

On each of these grounds the judgment seems to be right, and it should be 
affirmed, with costs.

Van Brunt, P. J., and Brady J., concurred.

Judgments affirmed with costs.

Additional Comments:
Reports of Cases Heard and Determined in the Supreme Court of the State of New 
York. Marcus T. Hun, Reporter. Volume LIX, 1889, HUN 52. Banks & Company, 
Albany, NY. 1901.

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