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Barnes v. Brown

Court of Appeals of the State of New York
Jan 20, 1892
130 N.Y. 372 (N.Y. 1892)


Argued November 30, 1891

Decided January 20, 1892

John E. Parsons for appellant Brown and respondent Seligman.

Hamilton Odell for appellant. Edward C. James and Ira Leo Bamberger for respondent Barnes.

The main controversy has relation to the rule or measure of damages applicable to the breach of the contract upon which this action was founded. While the plaintiff claims that damages cannot be less than two hundred thousand dollars and interest, it is insisted on the part of the defense that they were only nominal. Before proceeding to the consideration of the question in that respect, reference may properly be made to the facts out of which the alleged claim arose. The New York City Central Underground Railway Company was organized under an act incorporating it and authorizing the company to construct and operate an underground railway in the city of New York, passed in 1868 and amended in 1869. The authorized capital stock of the company was ten millions dollars. At the time the contract of March 26, 1872, was made, the plaintiff was president of the company. He then had some claims against it; and only one hundred and seventeen shares of capital stock had been issued, of which he held sixty-three shares. By the transfer of the sixty shares to Brown and Seligman, they took the control of the organization of the company. The amendments to the charter then pending in the legislature did not become a law, and consequently it was optional with them to either retain their purchase and pay, or surrender what they had received and put an end to the contract. They, however, concluded to treat it as effectual and assumed the undertaking to perform, and afterwards did pay to the plaintiff the twenty-seven thousand and five hundred dollars, and did deliver to the plaintiff certificates of two thousand shares of the capital stock of the company. This was, apparently, full performance, but in fact was not, because that so delivered was not paid stock. And when this was discovered by the plaintiff he offered to return the certificates and demanded such as he was entitled to. Further performance was refused, and this action followed. The only question as against the defendant Brown was one of damages, and the referee found that at the time when he and Seligman undertook to deliver the stock to plaintiff it had no actual or market value, and determined that he was entitled to recover nominal damages only. The stock certainly had no market value. None was in the market. This finding and conclusion were challenged by the plaintiff's exceptions. By reference to the condition of the company it is seen that the total amount of money received by it on account of subscriptions to its stock was five thousand seven hundred dollars, and that was received in 1869 and 1871. The other credits to the capital stock account were in demand loans and special services rendered the company. The various efforts prior to 1872 were unsuccessfully made to raise money for the purpose of construction of the railway, and the reason why the bonds of the company could not be negotiated was that it had been unable to obtain subscriptions to its capital stock to pay for right of way. The land and consequential damages incident to the construction of the railway were estimated at five millions dollars; and the expenditures by the company for work done towards construction and for land and land damages did not exceed four thousand dollars. The indebtedness of the company was about three hundred and fifty thousand dollars. This was in general terms the situation of the company when the contract of March 26, 1872, was made; and it was known as well to Brown and Seligman as to the plaintiff. Whatever of value they took by the contract was in the franchise of the company, and was dependent upon the use which could be made of it by way of the construction and operation of an underground railway. While the futility of the enterprise tended to show that it never had any actual value, there evidently was hope and expectation of success entertained by Brown and Seligman when they elected to retain the benefit of the contract, and it is in that view insisted by the plaintiff that the stock then had a value which to him may at that time have been available, although later it turned out to have had none, and, therefore, he lost whatever he may have realized by its conversion if it had in due time been delivered to him. There is apparently some force in this suggestion, but it is entirely speculative, assuming that the stock then in fact had no actual value as well as no market value. There was some conflict in the expert evidence upon the subject founded upon the situation of the company. While that on the part of the defendants was that the stock had no value, that of the witnesses called by the plaintiff was to the effect that it was as the situation then appeared, worth par. It may be observed that the plaintiff held the stock represented by the certificate so delivered to him until about September 1, 1874, upon the assumption that it was full paid stock before his discovery that it was otherwise.

The finding of the referee that the stock had neither actual nor market value was supported by evidence, and for the purpose of this review must be deemed conclusive. But it is insisted by the learned counsel for the plaintiff that the plaintiff should nevertheless have recovered the two hundred thousand dollars and interest upon it because he was entitled to the stock or to a sum which it would cost to obtain it. As a general rule, the damages which a party is entitled to recover against another for a breach of contract are such as will indemnify him for the loss he has suffered by the default. And it is with a view to that result that the rules for ascertaining and awarding damages have been adopted. The purpose of the rule in that respect is to leave the party in no worse, and place him in no better, condition than he would have been if the act or default complained of had not been committed.

It was with a view to such measure of relief, and the adoption of a rule to accomplish it, that the doctrine which gave the highest market value up to the time of the trial as the measure of damages for conversion of property of fluctuating value, as held in Markham v. Jaudon ( 41 N.Y. 235) and some prior cases, was overruled in Baker v. Drake ( 53 N.Y. 211), and the market value for a reasonable time within which to replace the property was adopted as furnishing the guide to the proper measure of damages and the more satisfactory means of indemnity. In that case the defendants, pursuant to an arrangement with the plaintiff, had purchased stocks to hold and carry subject to his order, so long as he kept his margin good. The defendants disposed of the stock in violation of the agreement. And the court there held, substantially, that an amount sufficient to indemnify a party injured for the loss, naturally, reasonably and proximately resulting from the act complained of, and which a proper degree of prudence on the part of the complainant would not have averted, is the proper measure of recovery when punitive damages are not allowable. And that "the advance in the market price of the stock, from the time of the sale up to a reasonable time to replace it after the plaintiff received notice of the sale, would afford a complete indemnity."

The principle upon which the determination of Baker v. Drake rested was that the measure of the plaintiff's damages was governed by the opportunity which was afforded by the market for him within a reasonable time to replace the stock on the refusal of the defendant to do so. ( S.C., 66 N.Y. 518; Colt v. Ownes, 90 id. 368.) And in Wright v. Bank of the Metropolis ( 110 N.Y. 237), the same rule was held in like manner applicable where stock fully paid for by the owner is through the honest mistake of the pledgee converted by him, and he refuses to replace it. Thereupon the owner may do so within a reasonable time, and the highest market price within that time is the proper measure of damages. This is the recognized rule in this state; and it is applicable alike to actions upon contract as in tort.

In the present case there was no market to resort to for the plaintiff to supply himself with the stock, nor any market value to furnish the measure of damages. The rule applied in the cases last cited was not, therefore, in that sense applicable to the situation in the case at bar. A subscription, however, to two thousand shares of the capital stock of the railway company, and payment of the full amount to the company, would have produced the stock, and it may be assumed that it could not otherwise have been procured. It is upon that ground that the plaintiff insists that the liability of the defendant is measured by that amount. This would have been so if the agreement of Brown and Seligman had been to pay the plaintiff two hundred thousand dollars in the stock of the company. Then their indebtedness or liability would not have been controlled by the value of the stock, but would have been fixed by the contract, but when the specific quantum of the stock was made the consideration in that respect for the plaintiff's sale to them, on their failure to deliver it, he was entitled in damages to the equivalent of that which they had undertaken to render.

In the absence of special circumstances in an action for conversion of personal property as well as one for failure to deliver it in performance of a contract where consideration has been received, the value of the property at the time of such conversion or default, with interest, is the measure of compensation. ( Ormsby v. Vermont, etc., Co., 56 N.Y. 623; Parsons v. Sutton, 66 id. 92.) No special circumstances were alleged in the complaint to take this case out of the general rule. Nor was there any fluctuation in the value of the stock succeeding the time for its delivery under the contract to qualify the application of such rule.

The damages which a party ordinarily may recover for breach of contract are those which naturally flow from the default. And if the contract is made in reference to special circumstances affecting the measure of compensation, such circumstances may be treated as within the contemplation of the parties and constitute a basis for the assessment of damages. ( Booth v. Spuyten Duyvel R.M. Co., 60 N.Y. 487.) They come within the meaning of special damages, and must be the subject of allegation in pleading to entitle the party to make proof of them, unless objection in that respect be waived. In the present case no facts of special character relating to damages were alleged, nor were any established by the evidence further than the mere fact that the stock of the company had no market value. If, notwithstanding that fact, the stock may have had an actual value, a different question would have been presented, for the plaintiff could not be subjected to loss, nor could the defendant be permitted to profit by the fact that the stock had no market value at the stipulated time for delivery. Then other means than those afforded by the market would be resorted to under the contract, as within the contemplation of the parties, to ascertain the amount requisite to full indemnity to the plaintiff. ( Sternfels v. Clark, 2 Hun, 122; 70 N.Y. 608.)

There may be cases in which damages have no support in market values where the value is peculiar to the party entitled to performance, and relief will be given accordingly. ( Scattergood v. Wood, 14 Hun, 269; 79 N.Y. 263; Parsons v. Sutton, 66 id. 92.) And when the remedy at law for compensation is inadequate or impracticable, it may be found in equity by way of specific performance. (Pom. Eq. Jur. § 1401.) Those are supposed cases to which the principles of law adapt remedies when they arise. But in the case at bar, the stock not only had no market value, it also had no actual value. Nor does it appear that it would have been of any value to the plaintiff, or of any substantial benefit to him for any purpose if he had received it. The defendant Brown and his associate Seligman did not by the contract undertake to do anything to give any future value to the stock of the company. Thus we have the simple case of a contract to deliver a certificate for a certain quantity of capital stock then having no existence, and when due and thereafter having no value. The claim that because the creation or issue of this worthless stock would cost its par value the plaintiff is entitled to recover that sum, does not seem to have the support of any well-defined principle of law. But it is said that with knowledge of the situation, Brown and his associate absolutely agreed to deliver the stock and, therefore, they were bound to pay the amount requisite to accomplish it without regard to the value of the stock or of its beneficial use to the plaintiff.

In an action at law to recover damages for breach of contract, the question of damages is one of indemnity. And in that respect the remedy founded upon this contract does not differ from that upon any other contract for default in the delivery of property which a party has unqualifiedly undertaken to deliver for a consideration received.

In Dana v. Fiedler ( 12 N.Y. 40), the measure of damages for failure to deliver madder pursuant to contract, was founded upon the market value at the time of the default. The question there arose upon the exclusion of evidence, speculative in character, and which for that reason was held inadmissible upon the question of such value.

Nor does Scattergood v. Wood have any essential application in principle to the case at bar. In that case there was an element of exemplary damages against the defendant, who had wilfully deprived the plaintiff of the use of a test machine designed by him for a special purpose, in consequence of which he was put to the expense of constructing another for such purpose. Of this intended use the defendant was advised when he appropriated and withheld the machine from the plaintiff. The recovery of the expense of constructing the second one, as damage for the detention of the other, was sustained, although by reason (as it turned out) of its insufficiency, the value of the latter was much less than such cost.

In the present case the action is founded solely upon the failure to deliver to the plaintiff the stock without any supported claim of special circumstances for any damages other than such as flow naturally and reasonably from such default of Brown and Seligman. While the performance of their contract in that respect may have required them to pay to the company two hundred thousand dollars, the entire value of its performance to the plaintiff was in the stock, which they undertook to deliver to him, and this was the only benefit he was entitled to take under that provision of the contract. The value of the stock, or its pecuniary equivalent, was the measure of his injury by the default. And as it had no value, the plaintiff was awarded complete indemnity by the conclusion of the referee that he was entitled to recover nominal damages only.

There was no error in the ruling of the referee by which evidence of value of the stock was received. The complaint alleged that on January 22, 1873, when the plaintiff accepted the certificate before mentioned of stock in performance of the contract, the stock of the company was worth, and salable in the market at its full par or face value, and demanded judgment for that amount and interest from January 23, 1873. This was the situation of the complaint when the evidence upon the question of value was given. And the plaintiff, upon a state of facts embraced in a hypothetical question, called upon the witnesses to state the value of the stock in January, 1873. This was the time when, by the issue tendered in the complaint and taken by the answer, the value of the stock was, by the pleadings, brought in question. And it may be observed that the assumed facts upon which the answers of the witnesses were predicated, were the same and no different at that time than they were on the day when the contract matured.

These views lead to the conclusion that, as to the defendant Brown, the judgment directed by the referee should be sustained. But as the order granting an additional allowance of costs to that defendant may be deemed to have been reversed at General Term, that disposition of the order is affirmed, and the costs recovered treated as reduced accordingly.

The contract was the joint undertaking of Brown and Seligman. The latter having died before the action was commenced, his personal representatives were joined as defendants with Brown. The complaint was as to those executors dismissed by the referee upon the ground that facts sufficient to constitute a cause of action against them were not alleged. Their testator having only the relation of joint contractor with Brown, his death placed the primary liability upon the latter, unless he was unable to pay or insolvent. Upon that fact the liability of those personal representatives to the plaintiff upon the contract was dependent, and that fact was essential to the cause of action against them. ( Grant v. Shurter, 1 Wendell, 148; Trustees, etc., Orphan House v. Lawrence, 11 Paige, 80; 2 Denio, 577; People v. Cole, 55 N.Y. 124, and cases there cited; Hauck v. Craighead, 67 id. 432.) It was not alleged. This defect was available by objection, which was taken at the trial. (Code, § 499.)

It does not appear on what ground the motion to amend the complaint was denied. The plaintiff was not entitled to it as matter of right. And the discretionary power of the referee, exercised in denying the amendment, is not the subject of review here.

The judgment in favor of the defendant Seligman, as modified by the General Term, should be affirmed. And the order reversing the judgment and granting a new trial, as against defendant Brown, should be reversed, and the judgment entered upon the report of the referee (after deducting therefrom the amount of the additional allowance of costs) affirmed.

All concur.

Judgment accordingly.

Summaries of

Barnes v. Brown

Court of Appeals of the State of New York
Jan 20, 1892
130 N.Y. 372 (N.Y. 1892)
Case details for

Barnes v. Brown

Case Details

Full title:OLIVER W. BARNES, Respondent and Appellant, v . GEORGE W. BROWN…

Court:Court of Appeals of the State of New York

Date published: Jan 20, 1892


130 N.Y. 372 (N.Y. 1892)
42 N.Y. St. Rptr. 536
29 N.E. 760

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