Duryea v. Lohrke

Dowling, J. : The firm of Irwin, Green & Co. was engaged in conducting a large grain and commission brokerage business at Chicago, in the State of Illinois, its commissions for the year 1903 being nearly $120,000. In the fall of that year it became financially embarrassed for various causes, and turned for assistance to William Duryea, who was the father-in-law of one of its members. In the latter part of that year the firm owed' Otto E. Loh-rke & Co. about 870,000,. the Bank of Montreal about .$70,000, Mrs. Boot about $60,000, and the customers of the firm about $70,000. With its affairs' in this condition, dependent upon public confidence as a great’ asset ',in its business, and being in danger of proceedings which might end its career, the firm succeeded in enlisting the aid of Duryea, who thereupon entered into the following written agreement with defendants composing -the firm of Otto E. Lohrke & Co., ¡which — 557 — bears date March 1,1904, but concededly was executed and delivered on March 22, 1904: “ Agreement made this First day of March, A. D., 1904, between William Duryea, of the City, County and State of New York and the copartnership of Otto E. Lohrke & Co., doing business in New York and Chicago. “ Whereas C. D. Irwin and A. W. Green, copartners doing business under the name of Irwin, Green & Co., in the City of Chicago, Cook County, Illinois, have applied to the said William Duryea for money to be used to carry on their business ; and “ Whereas the said William Duryea has agreed to advance or loan to said Irwin, Green & Go. such sum or sums of money as he may deem necessary in the ordinary conduct of the grain and commission brokerage business now conducted by said Irwin, Green & Go. in the City of Chicago, but, as a condition precedent to advancing or loaning such money or any part thereof, has requested that the firm of Otto E. Lohrke & Co. subject the payment of their claim against said Irwin, Green & Go. to the repayment to said William Duryea of any moneys by him advanced under this agreement ; Now, therefore, it is agreed as follows : “ 1. Said William Duryea, in consideration of the payment of the sum of One Dollar and the agreements hereinafter contained on the part of the firm of Otto E. Lohrke & Co., hereby agrees that he will from time to time, as the conditions of the business may seem to him to require, loan or advance to said Irwin, . Green & Co. such sum or sums of money as in his judgment may be reasonably required in the ordinary conduct of the business of said Irwin, Green & Co., except, however, for the claims against said Irwin, Green & Co., held by the Bank of Montreal of said City of Chicago, and said firm of Otto E. Lohrke & Co. “ 2. Said Otto E. Lohrke & Co., in consideration of the sum of One Dollar in hand paid, and.the agreements herein contained on the part of said William Duryea, do hereby promise arid agree to and with said William Duryea, that said Otto E. Lohrke & Co. will at all times subject their claims against the firm Irwin, Green & Co. to the repayment by said Irwin, Green-& Co. to said William Duryea of any and all moneys advanced or loaned by him to them after the — 558 — date of this agreement, and it being understood and agreed that - said William Duryea may make a similar agreement with the Bank of Montreal. “WM. DURYEA. “ Witness as to Wm. Duryea, “Robt. B. Honeyman, “ Witness as to O. E. Lohrke & Co., “H. Aaron. “ OTTO E. LOHRKE & CO.” - The agreement between Duryea and the Bank of Montreal therein referred to was duly made on or about the same date, and a further agreement .was then made with Harriet E. Root, which, however, is more explicit than the one hereinbefore set forth. On the day this agreement was executed, Duryea advanced $25,000 to Irwin, Green & Co., and in April the further sum of $5,000, in all $30,000. He never did anything further to relieve the firm from its financial distress,'and it is obvious that his advances were insufficient to meet the debts due by the firm to its customers, exclusive of the three principal creditors with, whom Duryea had made this arrangement. With matters in this condition and the firm still continuing to do business, Otto E. Lohrke & Co. demanded payment of their debt, and Irwin, Green & Co. made payments to them on account, beginning with one of $2,500 on July 21, 1904, and followed by others which by December thirty-first had reached an aggregate of $25,000. The firm of Irwin, Green & Co. was dissolved in the latter part of 1905, and in the interim, between the end of 1904 and the time of dissolution, the business of the firm suffered because rumors became current of its insolvent condition, and confidence in it was impaired. Duryea meantime had received a payment of interest on October 26, 1904, of $761.15, but no other sum was paid him by Irwin, Green & Co. He died on April 26, 1907, leaving a last will and testament, whereof the plaintiffs are executors. They commenced an action and obtained judgment against the members of the firm of Irwin, Green & Co. on July 27, 1907, in the sum of '$34,754.62, for the advances made by Duryea, -with interest; the execution issued on said judgment has been returned unsatisfied. They have brought the present action against Otto E.- Lohrkéi & Co. on the theory that their claim became impressed with a lien or — 559 — charge or trust for Duiyea’s benefit to the extent that any moneys received by Lohrke & Co. were subject to the liability of Irwin, Green & Co. to Duryea for the sums advanced under the contract. They do not contend that Lohrke & Go. assumed any personal liability to Duryea for the advances made by him, but that they pledged their claim or all they might realize upon their claim "for Duryea’s security. Upon the submission of the case to the jury, a verdict was returned in favor of defendants. And this determination of the issue was correct, for, as we view the agreement in question upon which plaintiffs rest their right to recover, there was no covenant upon the part of Lohrke & Go. to desist from the collection of their admittedly valid claim, or to postpone either to a day certain or indefinitely their right to enforce .it, or to assume the payment of the debt owing to Duryea. Duryea only agreed to advance from time to time such sums as in his judgment might be reasonably required in the ordinary conduct of the business of the firm; he was. not to consult with defendants upon the advances nor take their judgment thereon, nor notify them of what he did thereunder ; he was careful not to obligate himself to advance any definite sum, and left himself at liberty to do exactly what he after-wards did when he ceased assisting the firm far in advance of their relief from their difficulties. With no promise on Duryea’s part to do anything save to loan such amount as he might desire, what did defendants promise to do ? Only to subject their claims against the firm to the repayment by the firm of Irwin, Green & Go. to Duryea of the moneys he might thereafter loan them. That is, to subordinate their rights to those of Duryea, so far as the latter might choose to assert them. If Lohrke & Co. had commenced suit against Irwin, Green & Go. it may well be that Duryea might have claimed a right to intervene and have sought to restrain their enforcement of their claim by judgment and execution until his claim had first been satisfied. Or, had Irwin, Green & Co. become insolvent, Duryea might'well have asserted a preferential right to payment over defendants out of the assets of the firm. But it cannot be fairly argued that defendants in any way bound themselves to hold as trustees for Duryea any moneys which might be voluntarily paid them. To subject means to subordinate. It has been — 560 — universally held that where One, for example, takes a deed of property subject to a mortgage thereon, he does not thereby assume payment of the mortgage. The only departure from this rule has been in those cases where it has been held that one who takes a deed subject to the payment of-a mortgage impliedly covenants to pay the sanie. (Stebbins v. Hall, 29 Barb. 524.) But here there can be no such implication, for the explicit language of the agreement is, that it is subject to the repayment by Irwin, Green & Co. So it has been held that one wdio' takes over the assets of a firm subject to its debts did not thereby necessarily agree to assume them. (King v. Isreal, 19 Misc. Rep. 160.) Where one who holds a second mortgage upon lands, the first mortgage upon which has become- due, agrees that his mortgage shall be subject or subordinate to a new first mortgage about to be placed, he does not thereby assume payment of the new mortgage, nor waive his rights to enforce collection of his debts from the mortgagor. It is significant that in his agreement with Mrs. Boot, Duryea especially provided that his advances should constitute a prior lien or preferred claim upon the assets of the firm and that he reserved the right to make such agreements as he might deem wise for his protection with the firm or its creditors, he having permission to finance or reorganize or otherwise assist the firm without prejudice by reason of Mrs. Boot’s claim. In the case of the agreement in question there is no language- used which imports any promise on defendant’s part to pay Duryea’s claim or any assumption -knowingly made of Irwin, Green & Co.’s debt; there is no relinquishment of the right to receive payment from their debtor; there is no promise to postpone or waive their right to demand payment. The only natural inference from the language used is that defendants-agreed that in the not unlikely event of the distribution of the assets of the firm in liquidation, voluntarily or otherwise, Duryea should first be repaid his advances;; but that if that event did not happen they were at liberty to receive any payments voluntarily made by their debtor, and such payments did not necessarily come out of Duryea’s money nor does the evidence so establish. On the contrary, it appears that the first payment was not made to defendants until three months after Duryea had ceased making any- advances. In that time as well as the following months when payments were made the amount paid formed — 561 — but a- small proportion of what the firm’s profits had been. It maybe safely said that the evidence fails to show that any of Dnryea’s money was used to pay defendants. .That this was the real agreement of the parties and their Imderstanding of its effect is proven by the fact that while Duryea is shown to have had knowledge, both personally and through his attorney, of these payments to defendants, he never objected to them, never sought to base any claim against defendants upon them, and never demanded from defendants the moneys in suit, although he did not die until more than two years after the last payment was made. During all this time Duryea apparently did nothing to enforce payment .from Irwin, Green & Co., but permitted them to continue doing business, to trade upon the credit they still retained, and to part with’their assets to their other creditors so far as they would apply. While the conclusion reached by the jury should not be disturbed, we are of opinion that this was not a proper case for the granting of an extra allowance and the order, therefore, must be reversed. The judgment should be modified by striking therefrom the sum of $1,500 allowed as .extra costs, and as modified affirmed, with costs to respondents; order denying new trial affirmed. Order granting extra allowance reversed, without costs. Ingraham, P. J., McLaughlin and Clarke, JJ., concurred; Scott, J., dissented.