178 F. 784 | 4th Cir. | 1910
Orris K. Eldredge, a citizen of New York, sued defendants in error, citizens of the Western District of North Carolina, declaring upon a judgment recovered by him in an action against them in the Supreme Court of the county of New York, for the sum of $5,138.30. Defendants in error answered, denying that any service of process “personally or otherwise” was made on
For further answer and by way of counterclaim defendant's in error allege:
That on June 20, 1904, the Bessemer City Cotton Mills, hereinafter called the “Mills,” was and have since said date been continuously engaged in the manufacture of cotton goods in Gaston county, N. C. That on said day said Mills, in consideration of a loan, executed its promissory note to plaintiffs’ testator, Orris K. Eldredge, for the sum of $5,000, with defendant John A. Smith as indorser, and on the same day, and as a part of the same transaction, executed the contract,, a copy of which is attached, in the following words, to wit:
“This agreement made by and between the Bessemer City Cotton Mills, a corporation of the state of North Carolina, and J. A. Smith, of Bessemer City, state of North Carolina, parties of the first part, and Orris K. Eldredge, of the city and state of New York, party of the second part, witnesseth:
* “That, for and in consideration of a loan of five thousand dollars ($5,000) by the said Orris K. Eldredge, the said Bessemer City Cotton Mills and J. A. Smith hereby covenant and agree to consign the entire product and output of said mills and factories to said Orris K. Eldridge or to any firm or copart-nership with which he may be at any time connected upon his written request and designation of saipe, and for the sale of such product and output upon commission, which commission, based upon the prices at which the same shall be sold, shall be at the rate of five per cent. (5%).
“If, for any reason at any time, the said Bessemer City Cotton Mills and J. A. Smith wish to transfer this account and its said consignments to any other party or parties, the said Bessemer City Cotion Mills and .T. A. Smith shall and hereby covenant and agree that they will, as an essential preliminary to, and condition of such change and transfer, repay, purchase, or cause to be purchased of the said Orris K. Eldredge, or his personal representative, the said loan of five thousand dollars ($5,000), together with all accrued indebtedness, should he so desire, and to further liquidate all indebtedness upon the said account for advance and any other indebtedness, which may have been incurred upon or by reason of the same to the firm or copartnership in which said Orris K. Eldredge is interested.
“In witness whereof, said Bessemer City Cotton Mills has caused its corporate seal to be hereto affixed and these presents to be signed by its president and ,T. A. Smith personally, and the said Orris K. Eldredge has hereunto affixed his hand and seal this twentieth day of June, A. D., 1004.”
That at the same time, and in pursuance of said agreement, said Mills entered into an agreement with the firm of Eldredge, Lewis & Co., by which it agreed to ship its output of goods to said firm to be sold on commission. That plaintiff O. K. Eldredge is a member and managing partner of said firm. That the amount of said note was credited to said Mills on the books of said firm of Eldredge, Lewis & Co. That, in pursuance of said contract, the said Mills immediately thereafter began to ship its entire output to Eldredge, Lewis & Co. “under direction of plaintiff.” That said Mills continued to ship its goods to said firm “under directions of the plaintiff” until the-day of October, 1904, when the same was discontinued by order'of plaintiff. “That at said time the said firm had in its possession a large quantity of the goods of said Mills, worth more than enough to repay the plaintiff and his said firm all advances made by it, including the
Plaintiff’s testator hied a reply to the new matter and counterclaim, admitting the first, second, and third paragraphs except the averment that “the defendants were stopped from shipping the goods to the firm of Eldredge, Eewis & Co. by this plaintiff’; that allegation being denied.
Replying to the fifth paragraph, plaintiffs’ testator alleged;
“it is true sis alleged in said paragraph that at or about the time therein mentioned the iirm of Mdredge. Lewis & Co. had in their possession some of the goods of the Bessemer (’it.v Cotton Mills, which had been shipped to it by the said cotton mills, under the agreement hereinbefore referred to. and io be sold by said Ifiidredgo, Lewis & Co. as factors and commission merchants, under the usual terms and conditions applicable to such relations and transactions in the New York market; but it is also true that at the same time the Bessemer City Cotton Mills were indebted to the said firm of Eldredge, Lewis <⅛ Oo. for divers large advances made upon the first of the shipments to diem by the Bessemer City Mills, for which the said firm had a lien upon the goods ilion in their possession belonging to 1 ho said Mills, and that the said goods were duly sold by the said Eldredge, Lewis & Co. as such factors, and commission merchants and the proceeds arising from such sale were duly applied to the credit of the said .Mills and full statement and account thereof duly made and furnished to said Mills, and upon said statement of said account there were found to be due the said .Milis from Eldredge, Lewis & Co. on account of said sales about the sum of ¡¡¡.TO which was duly credited.'’
Plaintiffs’ testator further alleged that he was advised that the transaction with regard to the shipment of the goods, the sale thereof, etc., were matters entirely between said firm and defendants, “and that he had, and could have, no connection whatever with them,” etc. After the pleadings were filed, plaintiff O. K. Eldredge died, leaving a last will and testament, appointing Daniel A. Davis and Elliott M. Eldredge executors, who offered said will for probate, qualified in the state of North Carolina, and were duly made parties plaintiff. No further pleadings were filed. Upon issues submitted to the jury, they found for their verdict: First. That no process was served on defendants in the action in the Supreme Court of New York county, and that no valid judgment was rendered against them in said action. Second. That the 85,000 for which the note was given to O. K. Eldredge by defendants “was part and parcel of the contract entered into by the Bessemer City Cotton Mills with Eldredge, 'Eewis & Co., when they became agents for the sale of their goods in the city of New York.” Third. That on the 17th day of January, 1907, the said firm had on hand, under said contract, goods of the Mills of the value of $23,(¡22.72. Fourth. That the said Mills owed said firm for advancements made on said -goods, exclusive of the note, $8,144.58. Fifth. That, after deducting the note of $5,000 due O. K. Eldredge. the balance due the Mills by said Eldredge, Eewis & Co. was $3,144.43 less interest on note.
Defendants executed the note to O. K. Eldredge, a member of the firm of Eldredge, Eewis & Co., of New York, commission merchants, and at the same time, and as a part of the contract or agreement, upon which said loan was made, defendants and O. K. Eldredge executed the contract set out and marked “Exhibit A.” Pursuant to said contract, defendants agreed to ship the output of the mills to said firm upon the terms as to advancements, commissions, etc., agreed upon. Pursuant to said agreement, defendant Mills shipped large quantities of goods to said Eldredge, Eewis & Co. to be sold by them as commission merchants on account of the Bessemer City Mills. The shipments continued until some time in October, 1904, when Eldredge, Eewis & Co. had on hand a quantity of their goods and had made advancements on them to a large amount (neither the quantity of goods nor amount of advancements are stated in the pleadings). The firm sold the goods, and applied the proceeds to the credit of the Mills. These facts are disclosed by the pleadings.
The first question raised by the assignments of error relates to the rulings of the court below regarding the validity of the judgment. The defendants deny that any .process was served on them personally or otherwise, or that any valid judgment was rendered against them. Counsel suggest that it is not sufficient to deny the service of process because that might be conceded, and yet a valid judgment rendered, if there was a voluntary appearance by defendants — that a judgment regular upon the record reciting jurisdictional facts can be attacked only by alleging and proving that the court rendering it was without jurisdiction over the person of the defendant or over the subject-matter. We should concur in this position if the objection had been raised by demurrer. The issue in regard to the question of service of process was submitted to the jury, and plaintiffs introduced a properly certified transcript of the record reciting personal service, and that defendants did not appear or plead. The validity of the judgment therefore was made to turn upon the truth of the return on the summons by the person who alleged that he had made the service. It was open to the defendants to contradict this return. Thompson v. Whitman, 18 Wall. 457, 21 L. Ed. 897; Pennoyer v. Neff, 95 U. S. 714, 24 L. Ed. 565. “The courts of the United States only regard judgments of the state courts establishing personal demands as having validity, or as importing verity, when they have'been rendered upon personal citation of the party, or what is the same thing of those empowered to receive process for them, or upon his voluntary appeárance.” St. Clair v. Cox, 106 U. S. 350, 1 Sup. Ct. 354, 27 L. Ed. 222. The jury having found that no process had been served, the judgment was absolutely void, and, if no counterclaim had been pleaded, the court would have put an end to the case. If, however, it be conceded that the court below committed error in re
The real controversy, therefore, turns upon the correctness of the rulings upon the counterclaim. In disposing of the assignments of error relating to this phase of the case, it is important to ascertain, in addition to the allegations and admissions in the pleadings, what facts are either conceded or are established by uncontradicted evidence. The reply admitted that the firm of Kldredge, Lewis & Co. had on consignment for sale as commission merchants goods of the Mills. The only question, therefore, open for inquiry was the quantity thereof. Defendant Smith testified that the partners gave him a statement, which corresponded with the books of the Mills, showing the quantity to be 393,712 yards. This is not contradicted by any witness, although two of the parties to the transaction were living at the time of the trial. The amount advanced by the partnership on account of the goods was conceded to be $15,478.29. The only controversy between Smith and the firm of Kldredge, Lewis & Co. while he was in New York for the purpose of transferring the goods and account to another commission merchant was the claim made that the Mills should pay a commission on the goods unsold. In the view which we take of the case, this was immaterial. There seems to be no controversy about the fact that the goods were sold by Eldredge, Lewis & Co. for 4.62 ½ cents per yard, for account of the Mills, and the proceeds credited to its account. Defendants claim, and introduce evidence which does not seem to be contradicted showing, that the goods were worth on the markei 6 cents per yard. Smith testifies that he told them not to sell for less than that price. There can be no doubt, in view of the pleadings, that the relation existing between the Cotton Mills and Kldredge, Lewis & Co. ivas that of bailor and bailee for sale, or that the firm held the posssession of the goods with the right and duty to sell, in the absence of instructions, for the current market price in New York. We concur with counsel for plaintiffs that the allegation in the fifth paragraph of the answer, that plaintiff, O. K. Kldredge, converted the goods to his own use, is not sustained by any phase of the evidence. The goods were never in his possession otherwise than as a member of the firm. If the firm converted them to its own use, whatever its liabilhy may be, or his liability as a partner, an allegation that he converted them to his own use is not sustained by showing a bailment to the fin n and a wrongful conversion by it. We do not think, however, that the evidence sustains the theory that the goods were in a legal sense converted by any one, and, if defendants’ counterclaim is dependent upon sustaining that proposition, wc should hold that there was reversible error. The case being one at law, the statute provides that:
“The practice, pleadings and forms and modes of proceeding shall conform, asnear as may be, to Hie practice, pleadings and modes of proceedings existing at the time in like cases in Hie courts of record of the state within which such Circuit or District Courts are held, any rule of court to the contrary, notwithstanding.” Rev. St. § 914 (U. S. Comp. St. 1901, p. 684).
The Code of North Carolina (Revisal 1905, § 479), provides that the answer may contain “a statement of any new matter, constituting a
“It will not stop to inquire whether the cause Of action be in trover or det-inue, or whether, except for purposes of jurisdiction, it be ex delicto or ex contractu. If the party has a legal right of which he has been deprived, the court will find and administer a remedy corresponding to the right.” Parker v. Brown, 136 N. C. 280, 48 S. E. 657.
“Under the present system of pleading and practice, there being but one form of action, it is the office of the complaint to set forth the facts upon which the plaintiff’s right to relief is based, and. if they are adjudged sufficient, the court will direct the appropriate remedy.” Moore v. Cameron, 93 N. C. 51; Lumber Co. v. Wallace, 93 N. C. 23; Scarlett v. Norwood, 115 N. C. 284, 20 S. E. 459.
If the case has been tried upon the theory that defendants’ counterclaim is in tort, whereas, upon the pleadings and evidence, it is in contract, and, by reason thereof, the appellant has been deprived of some defense, or competent testimony has been excluded, or other prejudicial error committed because of the mistake as to the cause of action, a new trial will be granted. While an adherence to technical rules of pleading and procedure will not be permitted to work injustice, a liberal construction of the pleadings and procedure will not he permitted to work a like result. Applying the principles of the Code practice, as it obtains in North Carolina, we are of the opinion that the pleadings set out a state of facts entitling the defendants to sustain an action against the partnership for breach of contract, notwithstanding the allegation that “plaintiff converted-the goods to his own use.” It is manifest that the same principle, in respect to the sufficiency of the allegations, controls when the defendant sets up an independent counterclaim, which is nothing more than a cross-action. The duty imposed upon Eldredge, Lewis & Co. to the Cotton Mills was to sell the goods on hand for at least the current market price. 12 Am. & Eng. Enc. 958; Govan v. Cushing, 111 N. C. 458, 16 S. E. 619. It is not necessary to discuss the question whether the counterclaim can be sustained upon the theory of a conversion of the g-oods by either Eldredg'e or the partnership, because the evidence excluded the suggestion that there was any conversion by either. It is sufficient to say that in our opinion defendants would find much difficulty in sustaining their counterclaim upon the theory of a conversion. The evidence amply sustains the finding of the jury in regard to the value of the goods on the New York market upon a basis of six cents per yard. Raintiffs offered no evidence to contradict defendants’ witnesses in that respect. The measure of liability of Eldredge, Lewis & Co. was the difference between the market value of the goods and the price for which they were sold. 12 Am. & Eng. Enc.,958. Was Eldredge personally and individually liable for the breach of contractual duty by the firm of which he was a member? This depends upon the law of New York. The statute (Laws 1897, c. 420) provides that:
“Every general partner is liable to third persons for all the obligations of the partnership, jointly and severally with his general copartner.”
“In all eases of joint contract of copartners in trade or others, suit, may bo brought against all of any number of the persons making such contract..” Re-visal 11)05, § 413.
In Hanstein v. Johnson, 112 N. C. 254, 17 S. E. 155, JBurwell, J., speaking of the right of a creditor of a copartnership to sue, says:
“They are severally bound to him under the statutes of this state, in which all contracts are joint and several, aud plaintiff may sue any one or more of the partners as he wills.”
The North Carolina statute further provided that “no action shall abate by death, marriage, or other disability of a party if the cause of action survive or continues,” and “Upon the death of any person, all demands, whatsoever and right to prosecute any action or special proceeding, existing in favor of, or against such person, except as hereinafter provided, shall survive to, and against the executors, administrators or collector of his estate.” Revisal 1905, § 415. The learned counsel calls to our attention Leggat v. Leggat, 79 App. Div. 111, 80 N. Y. Supp. 327; Ritcher v. Poppenhausen, 42 N. Y. 373; Hoyt v. Bounett, 50 N. Y. 538; Spofford v. Rowan, 124 N. Y. 108, 26 N. E. 350. The last-cited case sustains the contention of counsel, hut it must he noted that it was deckled in 1891 aud prior to the act of 1897. He also calls our attention to the case of Walker v. Miller, 139 N. C. 448, 52 S. E. 125, 1 L. R. A. (N. S.) 157, 111 Am. St. Rep. 805. The writer wrote the opinion in that case while a member of that court. We have examined it aud find nothing involved in the record, or said in the opinion, bearing upon the question presented here. No question of the liability of copartners was presented. The sole question was regarding the power of surviving partners in closing up the business and dealing with its assets. The question of the liability of the representative of a deceased partner was not raised. There was no attempt to enforce any -demand against a partnership. The learned counsel for plaintiff suggests that the Supreme Court of North Carolina have held in Dickerson v. Wilcoxson, 97 N. C. 309, 1 S. E. 636, that the property of the personal representative of a deceased partner cannot be sold for partnership debts. An examination of the record in that case shows that the only question raised upon the appeal or decided by the court was that in an action against an executor no execution de bonis propriis could issue until the court found that the executor had assets applicable to the debt. Under the North Carolina statute, a judgment against the personal representative has no other effect than to fix the liability of deceased, and the amount of the debt, unless possession, by personal
First. That the facts set out as the basis of the counterclaim disclose a cause of action cognizable only in a court of equity. Under the North Carolina Code of Procedure, both legal and equitable defenses and counterclaims may be pleaded and set up in action founded on a legal cause of action. This is so1 because the distinctions between actions at law and suits in equity are abolished and all issues of fact are triable before a jury. It is conceded that for well-settled reasons the practice in the federal courts is otherwise, and an equitable counterclaim cannot be set up in an action at law. Scott v. Armstrong, 146 U. S. 499, 13 Sup. Ct. 148, 36 L. Ed. 1059; Street’s Fed. Eq. Prac. § 84. If, therefore, plaintiffs’ suggestion that the matter set up as a counterclaim is solely of equitable cognizance, his contention must be sustained. While it is true that courts of equity take jurisdiction in matters of account, where it is shown that a court of law, by reason of its modes of procedure, cannot afford complete and adequate relief, it is clearly within the jurisdiction of a court of law to hear and determine matters of account when such reasons do not exist. The mere fact that the relation between the parties is quasi fiduciary does not, in the absence of any complication of accounts, large number of dealings, or the other elements essential to equity jurisdiction, deprive them of going into a court of law for relief. The items here are but few, the dealings simple and. easily tried, upon either a few specific, or one general, issue. While it may be that for technical reasons the action of assumpsit would not lie, the common law of action of account has not, so far as we are advised, been abolished, although not often resorted to. “It is not in every matter of account, cognizable at law, that the equity jurisdiction will be exercised; the general rule being that a case is pre
Second. That the damages sought to be recovered are unliquidated, and therefore not the subject of a counterclaim. It is manifest that the measure of damages for breach of the contract of consignment or bailment is fixed and certain.
Third. It is next insisted that the judgment against defendants is conclusive as to the merits of plaintiffs’ claim against them, and it is not open to defendants to offer any matter of defense, objection, or exception, which might or should have been interposed in the original action. This is conceded, but setting up a counterclaim does not violate that well-settled principle. It is a cross-action, and entirely independent of the plaintiffs’ cause of action. “A defendant is not bound to assert a counterclaim in an action brought against him, nor will the plaintiff’s recovery bar a subsequent action on a cause of action which he might have set up as a counterclaim.” Woody v. Jordan. 69 N. C. 189; Tobacco Co. v. McElwee. 94 N. C. 425. The evidence offered in regard to the consideration of the note, and the circumstances under which it was executed, all of which was admitted in the reply, was not received for the purpose of showing that defendants were not liable on the note, hut to show that the counterclaim was connected with the subject of the action. For reasons hereinafter stated, we are of the opinion that this was immaterial and harmless.
Fourth. That the counterclaim “rests in tort,” being grounded upon an alleged unlawful conversion of defendants’ goods by the plaintiffs’ firm. As we have said, if the defendants’ counterclaim was dependent upon this theory, we should be compelled to declare that there was error because the allegation that the goods were converted by O. K. Eldredge is not supported by the evidence which shows that the goods were sold by the partnership. The authorities cited by the plaintiffs’ counsel fully sustain their position.
This brings us to an examination of the definition and classification of counterclaims by the Code of North Carolina (Rcvisal 1905, § 481). They are: First. “A cause of action arising out of the contract or transaction set forth in the complaint as the foundation of the plaintiff's claim, or connected with the subject of the action.” Second. “An action arising on contract, any other cause of action arising also on contract, and existing at the commencement of the action.”
It seems that the cause was tried upon the theory that defendants’ counterclaim fell within the definition of the first class. It must he conceded that, for manifest reasons, the defendants would encounter serious, if not insurmountable difficulty, in sustaining this theory. The only “cause of action” or “transaction” set out in the complaint as the foundation of the plaintiff’s claim is the nonpayment of the judgment alleged to have been recovered by him against defendant. The jury having found that no valid judgment was rendered, destroyed the plaintiff’s cause of action; hence, defendant could have no “cause of action” or “transaction” arising out of the “cause of action,” “contract,” or “transaction” upon which plaintiff’s claim was founded.
These difficulties disappear when we deal with the counterclaim as coming within the second class. If we are correct in the conclusion that defendant the cotton mills had existing at the commencement of the action an independent cause of action against O. K. Eldredge. arising .on or out of contract, there can be no doubt of its right to set it up by way of cross-action, and, if sustained by proof, recover the amount thereof without any reference to the result of plaintiff’s cause of action. It is held by the Supreme Court of North Carolina in Adams v. Bank, 113 N. C. 332, 18 S. E. 513, 23 L. R. A. 111, that, in action by a partner for a debt due him individually, the defendant can set up as a counterclaim a debt due by the partnership. This decision has been cited by the court with approval. In other jurisdictions the contrary has been held. 25 Am. & Eng. Enc. 578; Elliott v. Bell, 37 W. Va. 384, 17 S. E. 399. The test seems to be whether the cause of action set up is upon a joint or a joint and several contract. We are of the opinion that the court b.elow was not in error in refusing to grant the motion to strike out the counterclaim. This ruling disposes of several, assignments of error. The reason assigned for many of the exceptions to the admission of evidence tending to sustain the counterclaim is that it is “not material, relevant or competent upon the pleadings and issues arising thereon, and. whether a several judgment could be rendered against the plaintiff if this action were brought against him by defendant. If so, the same cause of action may be set up as a counterclaim in this action for any purpose, this being an action brought by the plaintiffs’ testator, individually on a judgment obtained by him against them, in the Supreme Court of the county of New York. These assignments of error, in view of what we have said, cannot be sustained. While not assigned for that reason, counsel insist that it was error to permit the defendant Smith to testify that O. K. Eldredge showed him a statement showing the number of yards of goods on hand and the amount due the partnership; that it was in his handwriting and tallied with the books of the cotton mills; that this constituted a transaction, or communication between Smith and Eldredge. It was clearly competent for Smith to say that a statement shown him was in the handwriting of O. K. Eldredge, and that it corresponded with the books of the Mills. This was not a transaction. Smith says that,
We have given.the records and briefs a careful consideration, and are of the opinion that for realons stated the judgment should be affirmed.
