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to the National City Bank of New York, which is not a party to this action, and the letter was not sent until the day after the time limit had expired.

It is not suggested that the dock delivery order did not carry control of the goods during the four days mentioned, or that the paper could not have been removed within that time. Then, too, if defendant required more time for the removal of the goods, it should have requested it when the documents were tendered on the 7th of January and doubtless any further time required could have been arranged for.

these cases is distinguishable from the present case. In Bank of Montreal v. Reckna gel, supra, the letter of credit expressly required that the description of the goods should be contained in the bills of lading and this court said:

"It was an integral part of the agreement of the parties that the bills of lading should contain a statement that manila hemp was shipped."

As the bill of lading did not contain this statement, the court held that the bank was not justified in paying the drafts.

In Portuguese American Bank of San [5, 6] Some criticism is made as to the Franscisco v. Atlantic Nat. Bank, supra, the statement contained in the documents when letter of credit did not call for any docuthe second draft was presented. The criti- ments whatever. The defendant guaranteed cism, really, is directed towards the expres- payment of a draft drawn to cover the pursions "in test 11/12, 32#" and "paper equal chase price of certain specified merchandise to original sample in test 11/12, 32 pounds." to be shipped by the drawers to the drawees, It is claimed that these expressions are not and it was held that the bank was not liable equivalent to "rolls to test 11-12, 32 lbs." I on the guaranty where it appeared that neithink they are. I do not see how any one ther the draft nor the express company's recould have been misled by them or misun-ceipt described the merchandise specified in derstood them. The general rule is that an the guaranty. obligation to present documents is complied with if any of the documents attached to the draft contain the required description. The purpose, obviously, was to enable defendant to know that dock delivery orders had been issued for the paper. Border Nat. Bank of Eagle Pass, Tex., v. American National Bank of San Francisco, Cal. (C. C. A.) 282 F. 73, 80.

[7, 8] The alleged oral agreement for a test was unenforceable against plaintiff. It is not alleged that Ronconi & Millar, the beneficiaries of the letter of credit, were parties to this alleged modification of it. They did not assign it to the plaintiff until May 25, 1921, five months after the agreement is alleged to have been made. The letter of credit could not have been modified in this way by parol. Seitz v. Brewer's Refrigerating Mach. Co., 141 U. S. 510, 12 S. Ct. 46, 35 L. Ed. 837; Gilbert v. Moline Plow Co., 119 U. S. 491, 7 S. Ct. 305, 30 L. Ed. 476. Since the defendant was already bound by its letter of credit to pay the drafts on presentation of the documents, without any inspection of the goods, there was no consideration for the alleged new promise and the same, even if made, was invalid. 1 Williston on Contracts, § 130; Vanderbilt v. Schreyer, 91 N. Y. 392; Sawyer v. Dean, 114 N. Y. 469, 21 N. E. 1012; Arend v. Smith, 151 N. Y. 502, 45 N. E. 872; Weed v. Spears, 193 N. Y. 289, 86 N. E. 100.

Defendant largely relies upon Bank of Montreal v. Recknagel, 109 N. Y. 482, 492, 17 N. E. 217, and Portuguese American Bank of San Francisco v. Atlantic Nat. Bank, 200 App. Div. 575, 193 N. Y. S. 423. Each of

[9, 10] Finally, it is claimed that the plaintiff was not entitled to a summary judgment since there was an issue raised as to the amount of damages. It appears from the affidavits in support of the motion that after the defendant had refused to pay the drafts, due notice was given to it by the plaintiff of its intention to sell the paper for the best price possible, although no notice of such resale was necessary. Personal Property Law (Cons. Laws, c. 41) § 141, subd. 4. No attention was paid to the notice and the paper was sold as soon as practicable thereafter and for the best price obtainable, which represented the fair market value at the time of the sale. The plaintiff's damages were, primarily, the face amount of the drafts. Plaintiff, of course, was bound to minimize such damage so far as it reasonably could. This it undertook to do by reselling the paper, and for the amount received, less expenses connected with the sale, it was bound to give the defendant credit. There was absolutely no statement in defendant's affidavits to the effect that the plaintiff did not act in the utmost good faith or with reasonable care and diligence in making the resale. The only reference thereto is that defendant did not get the best price possible. The defendant gave no evidence, however, of a market value at the time and the plaintiff submitted the affidavits of three dealers in paper that the paper was sold at the fair market value at the time of the sale. Plaintiff's damages were therefore liquidated by a resale on notice. Second Nat. Bank of Hoboken v. Columbia Trust Co. (C. C. A.) 288 F. 17, 26, 30 A. L. R. 1299. This is the rule

(146 N.E.)

which has long prevailed between seller and buyer. The only requirement is that the resale must be a fair one. Pollen v. Le Roy, 30 N. Y. 549; Dustan v. McAndrew, 44 N. Y. 72; Smith v. Pettee, 70 N. Y. 13; General Electric Co. v. National Contracting Co., 178 N. Y. 369, 70 N. E. 928; Jardine, Matheson & Co. v. Huguet Silk Co., 203 N. Y. 273, 96 N. E. 449.

In Dustan v. McAndrew, supra, the goods were tendered on November 30th and sold by plaintiff on December 26th. This court held that the trial court did not err in charging the jury that the plaintiff was entitled to recover the difference between the contract price and the price he obtained on the resale, and in refusing the defendant's request that the court leave to the jury the question | as to the market value of the goods at the time of the breach. Earl, C., who delivered the opinion of the court, said:

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are demanded. Between parties so situated payment may be resisted if the documents are false.

I think we lose sight of the true nature of the transaction when we view the bank as acting upon the credit of its customer to the exclusion of all else. It acts not merely upon the credit of its customer, but upon the credit also of the merchandise which is to be tendered as security. The letter of credit is explicit in its provision that documents sufficient to give control of the goods shall be lodged with the bank when drafts are presented. I cannot accept the statement of the majority opinion that the bank was not concerned with any question as to the character of the paper. If that is so, the bales tendered might have been rags instead of paer, and still the bank would have been helpless, though it had knowledge of the truth, if the documents tendered by the seller were sufficient on their face. A different question would be here if the defects had no relation to the description in the documents. In such circumstances it would be proper to say that a departure from the terms of the contract between the vendor and the vendee was of no moment to the bank. That is not the case before us. If the paper was of the

"In such case the vendor is treated as the agent of the vendee to make the sale, and all that is required of him is that he should act with reasonable care and diligence, and in good faith. He should make the sale without unnecessary delay, but he must be the judge as to the time and place of sale, provided he act in good faith and with reasonable care and diligence. * We are therefore of the opinion that the court did not err as to the rule of damages." (Page quality stated in the defendant's answer the

79).

There was a loss on the resale of the paper called for under the first draft of $5,447.26, and under the second draft of $14,617.53, making a total loss of $20,064.79, for which amount judgment should be directed in favor of the plaintiff.

The orders appealed from should therefore be reversed and the motion granted, with costs in all courts. The question certified is answered in the affirmative.

CARDOZO, J. (dissenting). I am unable to concur in the opinion of the court.

I assume that no duty is owing from the bank to its depositor which requires it to investigate the quality of the merchandise. Laudisi v. American Exchange Nat. Bank, 239 N. Y. 234, 146 N. E. 347. I dissent from the view that, if it chooses to investigate and discovers thereby that the merchandise tendered is not in truth the merchandise which the documents describe, it may be forced by the delinquent seller to make payment of the price irrespective of its knowledge. We are to bear in mind that this controversy is not one between the bank on the one side and on the other a holder of the drafts who has taken them without notice and for value. The controversy arises between the bank and a seller who has misrep resented the security upon which advances 146 N.E.-41

documents were false.

I think the conclusion is inevitable that a bank which pays a draft upon a bill of lading misrepresenting the character of the merchandise may recover the payment when the misrepresentation is discovered, or at the very least, the difference between the value of the thing described and the value of the thing received. If payment might have been recovered the moment after it was made, the seller cannot coerce payment if the truth is earlier revealed.

We may find persuasive analogies in connection with the law of sales. One who promises to make payment in advance of delivery and inspection may be technically in default if he refuses the promised payment before inspection has been made. None the less, if the result of the inspection is to prove that the merchandise is defective, the seller must fail in an action for the recovery of the price. The reason is that "the buyer would have been entitled to recover back the price if he had paid it without inspection of the goods" 2 Williston on Sales (2d Ed.) §§ 479, 576.

I think the defendant's answer and the affidavits submitted in support of it are sufficient to permit a finding that the plaintiff's assignors misrepresented the nature of the shipment. The misrepresentation does not cease to be a defense, partial if not complete, though it was innocently made.

Bloomquist v. Farson, 222 N. Y. 375, 118 N. | Wegman Page, deceased, against Paul R.
E. 855; 2 Williston on Sales (2d Ed.) § 632.
The order should be affirmed and the
question answered "No."

HISCOCK, C. J., and POUND and ANDREWS, JJ., concur with MCLAUGHLIN, J. CARDOZO, J., reads dissenting opinion, in which CRANE, J., concurs.

LEHMAN, J., not sitting.'

Orders reversed, etc.

(239 N. Y. 403)

ADAMS v. CLARK et al. (Court of Appeals of New York. 1925.) 204-One whose corporate stock becomes valueless because of fraud by which consent to act of bankruptcy was obtained may recover damages.

1. Corporations

One whose stock in corporation becomes valueless, because of joint fraud of others in obtaining her consent to act of bankruptcy by false statements as to arrangement for reorganization of company, suffers injury for which tort-feasors are liable to her personally.

Clark and others. From a judgment of the
Appellate Division (208 App. Div. 827, 203 N.
Y. S. 918), affirming a judgment of the Trial
Term on a verdict for plaintiff, defendant
Clark and another appeal. Reversed, and
new trial granted.

See, also, 119 Misc. Rep. 110, 195 N. Y. S. 529.

Arthur E. Sutherland, of Rochester, and Paul R. Clark, of Auburn, for appellants. William J. Baker, and Grace F. Crampton, both of Rochester, for respondent.

POUND, J. The action is based on a conspiracy to defraud. Plaintiff's testator, Mrs. Jan. 27, Page (formerly Wegman), was the owner of a majority of the stock of the Wegman Piano Company, herein mentioned, which was a once prosperous concern in the city of Auburn, but was at the time of the transaction, although claiming to be solvent, in need of ready money and available working capital. The alleged purpose of the conspiracy was to destroy the value of her stock. The alleged plan of the conspiracy was that the Cayuga County National Bank should squeeze the piano company by discontinuing financial accommodations; that defendant Knapp should falsely and fraudulently represent that he would furnish necessary money to carry on the business, if the company were reorganized; that defendant Clark should falsely and fraudulently represent to Mrs. Page that reorganization through the formality of friendly bankruptcy proceedings was the only proper method; and that in order to make the proceeding possible it was necessary that a resolution of the board of diWhile parties obtaining principal stock-rectors be passed reciting that the corporaholder's consent to act of bankruptcy, whereby tion was unable to meet its immediate obli

2. Bankruptcy 61-Solvency no defense to proceedings based on mere act of bankruptcy. Solvency is no defense to bankruptcy proceedings based merely on act of bankruptcy, such as resolution of board of directors that corporation was unable to meet immediate obligations.

3. Fraud 52-Bankruptcy proceedings held admissible on issue of fraud in obtaining stockholder's consent to act of bankruptcy and damage thereby.

her stock was rendered valueless, by fraudulent representations as to arrangement for reorganization of company, cannot negative fraud by proof of company's insolvency, the proceedings in bankruptcy are material on issues as to whether false promises were made without intent to perform and whether damage resulted therefrom.

4. Fraud 25-Injury essential.

gations, this admission being an act of bankruptcy, although not an admission of insolvency. Matter of Russell Wheel & Foundry Co. (D. C.) 222 F. 569.

It is alleged that Mrs. Page, believing and relying on the representations, consented to the adoption of the resolution, although it was against the interests of the corporation

Fraud and deceit do not warrant recovery and her own interests, and that thereupon of damages, unless injury concurs.. 5. Fraud 12-Mere promise not actionable. Though false representation as to state of mind may be false representation of material fact, mere unkept promise to do something in future is not actionable, unless made with intent not to perform.

the corporation was put into bankruptcy, its assets dissipated, and the value of plaintiff's stock destroyed; that defendants had no intention of furnishing the necessary funds to carry on the business, and did not furnish such funds; that their purpose was to obtain control of the corporation.

Of the original defendants, William R. Appeal from Supreme Court, Appellate Di- Payne, who was vice president of the bank, vision, Fourth Department.

Action by Lillian Wegman Adams, as executrix of the last will and testament of Julia

and a partner of Clark, and the defendant bank, were eliminated from the conspiracy on the trial, leaving Paul R. Clark and Alice

(146 N.E.)

Swaby Knapp, executrix of James M. Knapp, rupt. The fraud, he held, was in the obtaindeceased, against whom plaintiff has obtained, ing of Mrs. Page's consent to an act of bankjudgment. Knapp, it is said, was the pre- ruptcy; the fruit of the fraud was the bank, tendedly friendly capitalist who was to fur- ruptcy, and defendants could not take advannish the money, and Clark was acting as the tage of their own fraud. The nonexistence of attorney for the Wegman Piano Company on insolvency would have been no defense to the recommendation of the bank officials, the bankruptcy proceedings which were based but, it is charged, in bad faith and to bring on an act of bankruptcy merely (West Co. about its destruction. v. Lea, 174 U. S. 590, 19 S. Ct. 836, 43 L. Ed. 1098).

[1] The case was tried on the theory that, if Clark and Knapp made specific false affirmations to Mrs. Page of the arrangement under which the reorganization of the company was to occur, knowing that it was not so to occur, and damages resulted, the representations were actionable. Ritzwoller v. Lurie, 225 N. Y. 464, 122 N. E. 634. We may assume for the purpose of this appeal that the evidence was sufficient to go to the jury to the effect that the Wegman Piano Company was solvent, that the act of bankruptcy was obtained by the joint fraud of appellants, and that Mrs. Page was damaged thereby. If by reason of such fraud Mrs. Wegman's stock became valueless, she suffered an injury for which the tort-feasors were liable to her personally. General Rubber Co. v. Benedict, 215 N. Y. 18, 109 N. E. 96, L. R. A. 1915F, 617. Mrs. Page alleges that the value of her stock was $700,000, and that the same was rendered valueless by the fraud of defendants; the verdict of the jury was for $25,000.

[2] It is contended by appellants that the bankruptcy proceedings were res adjudicata on the question of solvency (Gratiot Co. St. Bk. v. Johnson, 249 U. S. 246, 39 S. Ct. 263, 63 L. Ed. 587), or at least competent as bearing on the questions at issue. The learned trial justice held in effect that the regularity of the bankruptcy proceedings was not on trial; that their regularity might be as sumed; that the question was merely whether the bankruptcy proceedings were initiated in fraud; that, while there was no attack on the regularity of the proceedings themselves, they were not res adjudicata on the question of the solvency of the company, because that question was not litigated. He therefore excluded as irrelevant the schedules, reports, and other proceedings in bankruptcy, which established for the purposes of the administration of the estate in bankruptcy that the company was insolvent, and that its assets were insufficient to pay creditors more than 10 cents on the dollar. He properly drew a distinction on the question of value between a live, going concern and the same concern in bankruptcy; but he further held that the adjudication in bankruptcy merely established the status of the corporation as a bankrupt, and gave the court jurisdiction to administer the estate as that of a bank

[3, 4] The principal question of law to be considered is whether it was error to exclude the evidence offered to show the condition of the bankrupt estate. Undoubtedly the theory of the learned trial justice was correct that the fraud, if established, set in motion a train of disaster, and that defendants cannot negative the fraud by proving the disaster. But the solution of the problem of the admissibility of evidence depends upon the circumstances of the rejected proof in relation to the whole case.

On the undisputed evidence it appears that the piano company, while claiming to have assets largely in excess of its liabilities, was far from prosperous; that it was troubled in obtaining extensions of credit; that it needed and was seeking a large amount of new capital. Although the complaint alleges that the conspiracy had for its object the acquisition of the business of the Wegman Company by defendants, it does not appear that this purpose was accomplished or sought. Knapp was appointed first receiver and then trustee of the property of the bankrupt company. As such he received his fees. Clark was employed as attorney and also received fees, but the alleged purpose of the conspiracy did not otherwise fructify. It was a closely disputed question of fact whether the company was in a position to meet its outstanding obligations when the act of bankruptcy was committed, or, indeed, whether it was solvent at the time. It might be inferred that, unless it could get new capital or make new loans to take up old ones, the company could not long continue to meet its outstanding obligations when they became due, or remain in business, or keep out of bankruptcy.

We thus come down to the substantial questions: (a) Did Clark and Knapp falsely and fraudulently say that the bankruptcy would be a mere formality to go through with in order to effectuate a reorganization? (b) Did Knapp, acting with Clark, falsely and fraudulently say that, if the corporation was put through bankruptcy, he would furnish the necessary funds to rehabilitate it? Was there a false representation as to an existing fact; i. e., the mental state of the promisors, coupled with a false promise with regard to the future? Adams v. Gillig, 199 N. Y. 314, 92 N. E. 670, 32 L. R. A. (N. S.)'

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127. And (c) was Mrs. Page damaged thereby? For fraud and deceit alone do not warrant the recovery of damages. Deceit and injury must concur. Urtz v. New York Cent. & H. R. R. Co., 202 N. Y. 172, 173, 95 N. E. 711. Did Knapp, acting with Clark, withhold the promised aid because he did not intend to put money into the concern when he first promised to? On these points the condition of the company, not as shown by book entries, but as a practical proposition in the business world, becomes material.

[5] Although a false representation as to a state of mind, may be a false representation of a material fact (Deyo v. Hudson, 225 N. Y. 605, 612, 122 N. E. 635), it does not follow that every broken promise acted upon is actionable. Mere promissory statements as to what will be done in the future are not actionable. People v. Miller, 169 N. Y. 339, 350, 62 N. E. 418, 88 Am. St. Rep. 546. It may well be that Knapp intended to help the company, but with the best of intentions changed his mind when he discovered that its financial condition was hopeless. Disappointed hopes are not the basis of legal liability. If they were, no one, without making himself liable for damages, could innocently and in good faith say that he would advance money in aid of an embarrassed enterprise, and then change his mind when it developed that the situation was not as rose colored as goodnatured optimism had pictured it when the promise was made. Proof of failure to keep a promise may tend to establish the intent not to keep it, but common experience teaches us that such proof is not conclusive; that the making of an unkept promise does not imply of necessity in all cases a present intention not to keep the promise.

Although the trial justice charged the jury on this point, the bankruptcy proceedings, although not binding on the plaintiff, were at least competent and material evidence as bearing on the actual relation of the parties, the fraudulent purpose of defendants and the damages sustained by plaintiff. It is not altogether a question of fair valuation. It is a question of legal liability for false representations. It is not altogether a question of dead property after bankruptcy has intervened. It is a question of a fraudulent purpose to break a promise. It is not a question of breach of contract. It is a question of tort liability merely. The fact that the company was wound up in bankruptcy at a great loss to its creditors, while not conclusive, has some bearing on the question whether Clark and Knapp deliberately set out to wreck a going, solvent concern, and thereby damaged Mrs. Page, or whether the withdrawal of promised aid was due to their discovery of the true condition of things. Promises as to what would be done in the future may have been effective in producing the result complained of, but the distinction must be observed between a mere assurance that something will be done in the future and a present intention not to act on such assurance.

The judgments should be reversed, and a new trial granted, with costs to abide the event.

CARDOZO, CRANE, ANDREWS, and LEHMAN, JJ., concur.

HISCOCK, C. J., and MCLAUGHLIN, J.,

absent.

Judgments reversed, etc.

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