Shaw v. Leavitt

3 Sand. Ch. 163

Opinion

The Assistant Yice-Chancellor.

It is clear that the complainants cannot uphold the title of Messrs. Blatchford and Tal mage to the property in question, under the assignment and conveyance dated August 25, 1841. That transaction was so similar in its circumstances, to the one emanating from the same institution, which was before me two years since, in Leavitt v. Tylee, (1 Sand. Ch. R. 207,) that I need only refer to my opinion then pronounced, and to say that the grounds of the decree in that suit, are decisive against the transfer to these parties.

Footnotes

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(a)

Independent of that transfer, the controversy may be thus stated:

The complainants were indebted in a large sum to the Bank of England, of which £63,544 5s. 3d. sterling, was payable in the fall of 1838. They had a large amount of property in this country consisting of commercial paper, stocks and lands; but it was not convertible into money in season to meet their payment to the Bank of England. After a negotiation with the North American Trust and Banking Company, the complainants in April, 1839, transferred and conveyed to that company, property and securities, principally in this city, which were scheduled at nearly $450,000, and estimated to be worth more than £64,000 sterling. Two of the complainants gave their bond to the same company, for £64,950 10s. 4d. sterling, payable on the 28th day of October, 1840, with interest at seven per cent., half yearly. On the other hand, the North American Trust and Banking Company, executed and delivered to the complainants, the company’s certificates of deposit, for £64,868 2s. sterling, payable to Gabriel Shaw or order, in London, two years after date, with interest at five per cent. These certificates as well as the bond, bear date February 28th, 1839. The certificates were indorsed by Mr. Shaw and delivered to the Bank of England, as a security for the sum due to the latter in 1838, the payment of which was thereupon respited to the complainants.

The North American T. and B. Company failed to pay their certificates, and having become insolvent, went into hands of a receiver-in September, 1841; and such of the assigned property as had not been converted by the company, became vested in Mr. Leavitt, the receiver. The bond executed by two of the complainants, has not been paid, and is held by the receiver.

So far, I believe there is no dispute as to the facts. The complainants further allege that the property which they made over to the company, was a collateral security for the payment of their bond, and also for the payment of the company’s certificates to the Bank of England. The receiver agrees that the transfer of the property was made as a security, but it was only a security for the payment of the bond to the company. This difference forms the great point in the cause.

I have stated enough of the case to show that the • receiver is not correct in his first point, in which he in effect demurs to the bill. If the complainants establish their allegations by competent testimony, they will show an interest which fully entitles them to relief. It is true the Bank of England holds the certificates, but the complainants are the party who is to be the loser if the certificates are not paid. They are liable to the bank for their original debt, as well as by Mr, Shaw’s indorsement, and they have a right to enforce the proper application of the property transferred, as a fund for the discharge of those certificates. The Bank of England, as the holder of the certificates, is a proper party defendant. The bank might have been a complainant; but its choice to remain passive, cannot prevent the complainants, also having an interest, from proceeding for its protection.

Before looking into the testimony relative to the disputed fact arising upon the complainants’ transfer, I must dispose of the serious objection which was so forcibly urged against the testimony, introduced by the complainants to support their position.

The receiver insists, that the contract between the parties, is expressed in the bond which he holds ; and that the complainants’ testimony being by parol, and offered for the purpose of altering, varying and enlarging the terms of such contract, is wholly inadmissible.

The conveyance and transfer of the property by the complainants, were in their terms, absolute and unconditional. They express no trust, nor have they any reference to either the bond or the certificates of deposit. Both parties concur in declaring that they do not express the true nature of the transaction. Both the complainants and the receiver agree that the property was transferred as a collateral security, and that the surplus belonged to the complainants. The receiver produces a bond, signed by two of the complainants, which recites under their seals, that the property was transferred to secure its payment. The complainants prove in the custody of the receiver, a cotemporaneous writing signed by one of the two complainants who executed the bond, which declares that the property was transferred as a security for the bond and the certificates also. One of the complainants is not a signer of either of these instruments. The North American Trust and Banking Company, did not execute either of them, and they are parties to them only by accepting them. The writing signed by Mr. Shaw, was delivered to the company with the bond and the securities, and there is no evidence that it was ever returned or repudiated.

Why is not the writing, just as competent evidence to show the defeasance upon which this property was transferred, as the recital in the bond 1 I mean, on the assumption that it was equally known and understood by the company. On that assumption it appears to me, that the transfers, the bond, and the letter of Mr. Shaw, are'all to be construed together, as if their terms had been brought into one instrument, executed by both parties. Both the bond and the letter, derogate from the absolute terms of the transfers to the company. But the letter does not detract from the terms of the bond, or diminish its force. The company, with the letter engrafted upon the bond, might sue and collect it when it was due, precisely as they could do if the letter did not exist.

The letter therefore, does not conflict with or contradict the bond.1 It avers another object for which the property was transferred, as security, which may stand with the object expressed in the bond.

Parol evidence has been held admissible for nearly 300 years past, to show a consideration not mentioned in a deed, provided it be not inconsistent with that which is expressed. (Villers v. Beamont, Dyer’s R. 146, a; Clifford v. Turrell, 1 Y. & Coll. Chy. Ca. 138; and 6 Lond. Jur. Rep. 5; S. C. on Appeal, 9 Lond. Jur. R. 633.)

In.this view, the letter would be competent, yielding to the bond the force of a contract between the parties relative to the property.

I have' mentioned that the bond was not executed by the company. Hence its force as a contract, in respect of this property, rests on its delivery to and acceptance by the company.

Suppose that the property had produced its valuation, or $120,000 more than the amount of the certificates of deposit; and the complainants had filed a bill for an account of the surplus, to which the company had answered, denying their right and insisting on the absolute terms of the transfers of the property. Would not proof of the delivery of Mr. Shaw’s letter, with those transfers, and its acceptance by the company, establish the complainant’s right to the surplus 1 It would, undoubtedly, in my judgment. And if so, it is evidence of the contract between the parties, standing upon the same footing in that behalf as the bond. Next as to the question of fact.

The agreement between the complainants and the company, was made by a committee of the latter, and it is proved to my entire satisfaction, that a part of the agreement was that the property should be held as an indemnity to the Bank of England, and the complainants, for the redemption of the certificates of deposit.

This is the substance of Mr. tihaw’s letter. Mr. Graham testifies that it was the understanding, and he explains that it was his objection to having it appear in the bond, which led to its omission there, and the substitution of the letter, as equally oper ative for the complainant’s protection. Mr. G. was associated with the special committee, charged with this negotiation and was a member of the finance committee, which directed the acceptance of Mr Shaw’s proposition ; and he had the entire charge of perfecting the execution and delivery of the written instruments by which it was consummated.

Mr. Beers, who it is claimed, proves a different state of things, was the president of the company. But he was not a member of either of those committees, and had only a general knowledge of the transaction. He is clearly mistaken, when he says that Mr. Shaw’s letter was sent in after the transfers were made. And it is probable that his idea, that the property was security for the bond only, came from his knowledge that there was an objection made and persisted in, to having the bond express any thing more, while he was ignorant of the mode in which Mr. Shaw’s object was attained. His views of a trust in relation to that property, show that his mind was impressed with the existence of something beyond the terms expressed in the bond. And finally, contrasting his means of knowledge and his connection with this affair, with those of Mr. Graham, there can be no hesitation in adopting the statements of the latter as the most reliable evidence. There is really no conflict of evidence. The one understood and recollects, what the other either did not know or does not remember.

The other testimony confirms the version of the affair given by Graham. The proof is positive, that Mr. Shaw’s letter was delivered to Graham when the securities and property were transferred, and went with the transfers into the vaults of the company. Its delivery to Mr. Graham with the securities, was a sufficient delivery to the company; but in addition, the indorsement upon the letter, shows that it came to the notice as well as the hands of the cashier of the company, on his receiving the transfers and securities. If the letter were repugnant to the agreement, it ought to have been returned, or the fact notified to Mr. Shaw. Neither was done, and the silence of the officers of the company must be deemed evidence that the letter expressed the agreement. The subsequent dealings of the company with the securities, confirm this inference. They were kept separate from the assets of the company. The commercial paper was not treated as the company treated their discounted bills and notes. The complainants were permitted to withdraw and substitute securities, as is provided in Mr. Shaw’s letter, and which is not expressed in the bond. And when the company were brought to an account for $20,500, of the collaterals which they had collected and omitted to apply in redeeming their certificates of deposit, they gave their obligations for the amount, instead of indorsing it as a payment on the complainant’s bond, which was the natural and obvious mode of settling the $20,500, if the securities were collateral to the' bond alone.

The question as to the legality of the certificates of deposit, was argued, but I deem it unnecessary to decide it. The receiver insists, that the complainants are not at liberty to set up the objection that the certificates were illegal or void; and that the point is not properly presented by the pleadings.

The bill does not allege that they were illegal., or contrary to law, but simply that they were void and did not subject the company to any liability. This might be because of an excess of power in issuing them; and does not involve any violation of positive law in which the complainants participated. It therefore does not prevent the complainants from relying upon the void nature of the consideration which they received, for the transfer of their property to the company. But whether void or valid, is indifferent to the complainants, if the property be applied for their redemption.

Another point is made in respect of the post notes of the company given on the settlement for the §20,500, collected out of the assigned securities. It does not appear to be necessary for me to decide this question. Assuming for the argument, that the. receiver is right, and the post notes were void and illegal • the whole transaction is void, and the company stands liable for the money collected and misapplied. To that extent, as a transaction growing out of the transfer of the securities, I think the complainants are entitled in this suit to be declared creditors of the company.

The loan of $25,000 accompanying this arrangement does not necessarily enter into the controversy about the property assigned and conveyed in 1839. And as the validity of all these post notes, constituting what is usually called the Yates trust, has been fully argued, and is under advisement in another branch of the court; I prefer not to pass upon it in this case.

The complainants are entitled to a decree for the transfer of the remaining property to themselves or the Bank of England, on delivering up the certificates of deposit which are-outstanding. The sum paid by the company in redemption of their certificates, should be offset against lhe sum collected by them out of the securities transferred. For the balance, if against the company, the complainants, or the Bank of England, will be declared creditors. And if the balance be in favor of the company, it must be paid to the receiver, by the complainants. The questions arising upon the Yates trust post notes for the $25,000, must be reserved.

As to costs, each party must bear their own. The receiver did right in respect of his trust, to defend the suit, and that trust must re-imburse him. I perceive no ground upon which he can be allowed costs against the complainants, or which is the same thing, out of the fund in question. He is not the trustee of that fund, and the cases cited by his counsel, were those where the trustee, acting for the protection of his trust, was allowed costs out of such trust.

A like decision was made in Leavitt v. Griffin, March 12, 1846, by the Assistant Vice-Chancellor; setting aside a similar transfer made by the North American Trust and Banking Company,.for the benefit of James Holford and The Real Estate Bank of Arkansas.