Citations
- 192 A.D. 268
Full opinion text
Dowling, J.:
This action was brought to recover the amount of two promissory notes each made by defendant to the order of the Thompson-Starrett Company, bearing date November 1,1912, payable in one year after date, with interest, one note being in the amount of $96,733.52, the other $3,094.63. The complaint sets forth that the notes, in consideration of the face amount thereof and the accrued interest were duly indorsed and delivered by the Thompson-Starrett Company to the plaintiff on December 7, 1912, and that on November 3, 1913, said notes were duly presented for payment and payment demanded and refused, whereupon the notes were duly protested.
The amended answer denies knowledge or information sufficient to form a belief as to whether plaintiff is the owner and holder of the notes in suit or either of them, and also as to whether the notes have been paid or the whole amount thereof remains due. There is then set up as a first separate defense:
“ III. On information and belief that before the commencement of this action the notes, interest and protest fees mentioned in the amended complaint were paid unto the plaintiff by the Thompson-Starrett Company, the payee in said notes named and the alleged endorser thereof, and that thereupon said last named company became, thereafter continued to be and still is the owner and holder of said notes and each of them, and that this action was not brought, nor is it being prosecuted, by or in the name of the real party in interest, to wit, said Thompson-Starrett Company as plaintiff; but was brought and is being prosecuted by and in the name of the plaintiff above specified, in the interest of said ThompsonStarrett Company, and for the purpose, if possible, of unjustly depriving this defendant of the benefit of his partial defense to said notes hereinafter set forth.”
The answer then sets up as a second and partial defense the following allegations:
“ IV. That on or about August 17,1911, the defendant and the Thompson-Starrett Company, the payee of the notes alleged in the amended complaint, entered into an agreement in writing whereby it was agreed that said Thompson-Starrett Company should execute certain work for the defendant at Uva, in the State of Wyoming; that the compensation of said Company should be on the basis of the cost of said work plus five per cent, of such cost; that monthly statements should be rendered by said Company to the defendant, showing the cost of the work at the end of each month, to which should be added said five per cent, commission, and that in payment therefor the defendant should give to said Company his promissory notes with interest at six per cent, per annum.
“ V. That said Thompson-Starrett Company entered upon the performance of said agreement and from time to time rendered to the defendant statements of cost, representing the same to be correct; that relying upon such representations and believing the same to be trué, the defendant made and delivered to said Thompson-Starrett Company his certain promissory notes as said statements of cost were rendered to him, and duly performed all the conditions of said agreement on his part to be performed; that on account of said notes defendant paid to said Thompson-Starrett Company the sum of twenty-four thousand six hundred forty-six dollars and ninety-two" cents ($24,646.92); that on November 1, 1912, the amount of said notes outstanding was ninety-six thousand seven hundred thirty-three dollars and fifty-two cents ($96,733.52).
“ VI. Upon information and belief, that in the performance of said agreement said Thompson-Starrett Company was unskillful, negligent and wasteful and unreasonably and improperly delayed the work undertaken by it, thereby largely and improperly increasing the cost of such work, and said statements of cost were false and fraudulent in that they contained charges for the purchase of unnecessary and useless supplies and materials, for work and labor done and supplies and materials purchased at excessive rates, for expenditures not belonging to the work and for expenditures made in consequence of the unskillfulness, negligence and unreasonable delay on the part of said Company, its agents, servants and employees, in the performance of said agreement, such charges having been made by the agents and servants of said Company employed on said work knowingly and with intent to deceive and defraud the defendant.
“ VII. That the matters alleged in paragraph VI of this amended answer were unknown to the defendant at the time when he received said statements of cost and gave his notes therefor; that on the subsequent discovery of the matters in said paragraph alleged the defendant communicated the same to said Company, and thereafter, on November 1, 1912, on the maturity of said notes then outstanding and in renewal thereof, defendant made and delivered .to said ThompsonStarrett Company his note for ninety-six thousand seven hundred and thirty-three dollars and fifty-two cents ($96,733.52) set forth in the amended complaint, together with his further note for three thousand and ninety-four dollars and sixty-three cents ($3,094.63) also set forth in said amended complaint, the amount of the note last mentioned representing the amount shown in the statement of cost rendered to the defendant by said Thompson-Starrett Company for the month of July, 1912; and that the defendant expressly reserved to himself all rights and claims against said notes alleged in the amended complaint, in connection with the performance of said agreement on the part of said Company.
“ VIII. Upon information and belief that the plaintiff, before said Thompson-Starrett Company endorsed and delivered to it the notes alleged in the amended complaint and before paying for the same, had knowledge of the claims of the defendant against said Thompson-Starrett Company in respect of said notes and the transactions hereinbefore alleged and of the reservation by the defendant of his rights and claims against said notes.”
The decision of the learned trial court has found the following facts: Plaintiff is a domestic corporation, engaged among other things in the banking business and at the times in question was the banker of the Thompson-Starrett Company.
On or about August 17, 1911, the defendant and the Thompson-Starrett Company, the payee of the notes alleged in the amended complaint, entered into an agreement whereby it was agreed that the Thompson-Starrett Company should execute certain work for the defendant at Uva, in the State of Wyoming; that the compensation of said company should be on the basis of the cost of said work plus five per cent of such cost; that monthly statements should be rendered by said company to the defendant, showing the cost of the work at the end of each month, to which should be added said five per cent commission, and that in payment therefor the defendant should give to said company his promissory notes bearing interest at six per cent per annum. This work consisted of the construction of dams, ditches, dikes and other matters, connected with an irrigation project at Uva, conducted by the North Laramie Land Company, whereof defendant owned or controlled all the stocks and bonds. This company owned the land upon which the work was being done. The plant already installed had proved to be inadequate, and the contract was for its alteration and enlargement. The Thompson-Starrett Company entered on the performance of its agreement and from time to time rendered to defendant statements of cost representing the same to be true, and relying upon such representations and believing them to be true, defendant made and delivered to the Thompson-Starrett Company his promissory notes after the statements were rendered to him, the notes in suit representing the balance claimed to be due.
On May 1, 1912, in place of notes maturing on that day, amounting to $70,992.91, the defendant paid to the ThompsonStarrett Company $22,225.10 and gave to the said company his note for $50,000 maturing November 1, 1912, said payment representing $20,992.91 on account of principal and $1,232.19 as interest on all of said notes maturing May 1, 1912, all subject to all defenses and claims against the same.
Said payment of $22,225.10 was made, and said note for $50,000 maturing November 1, 1912, was given, upon the representation that the statements of cost rendered to the defendant by the Thompson-Starrett Company were correct and upon the agreement that an investigation into the cost of the work would be made; that if anything was wrong it would be corrected and an adjustment made, and that for the work remaining to be done notes should be given maturing November 1, 1912. Further, pursuant to said agreement, the defendant made and delivered to the Thompson-Starrett Company his three additional promissory notes maturing November 1, 1912, aggregating $49,828.11. The payment made on May 1, 1912, of interest in the amount of $1,232.19 was an overpayment of interest to the extent of $352.04, subject to all defenses and claims against the same.
The contract between the Thompson-Starrett Company and defendant provided that the former should accept as payment for its expenditures and commission on said work the promissory notes of the latter, bearing interest, which defendant promised and agreed to execute and deliver to the company each and every month for the amount of the expenditures and commission of the company for the preceding month. The Thompson-Starrett Company delivered monthly to defendant vouchers aggregating $115,715.79, and defendant executed and delivered to the Thompson-Starrett Company his promissory notes in the initial gross total sum of $121,501.56, excepting an amount of $680.52 for which no note has been given or payment made. The court has found that the payments made by the ThompsonStarrett Company were evidenced by receipted vouchers showing payment by it and duly rendered and delivered. The smaller in amount of the notes in suit was given by it to defendant monthly during the continuance of the work in payment of expenditures on the work shown by the vouchers delivered by the Thompson-Starrett Company to defendant on July 31, 1912, with the commission thereon.
On November 1, 1912, the defendant made and delivered to the Thompson-Starrett Company the promissory notes in suit under an agreement with that company that such were made and delivered subject to all rights, claims and defenses of defendant and without prejudice or waiver of any rights and claims defendant might have against said notes on any account in connection with the agreement above mentioned, such being expressly reserved by defendant.
The notes in suit were given, not as evidence of an indebtedness of a fixed amount, but were given with the distinct understanding that the amount was to be fixed after an investigation into the bona fides of the bills rendered and were subject to all the defenses and claims against the notes.
On November 1, 1912, defendant, by another of his notes for $2,421.82 maturing and paid on May 2, 1913, made a payment of $2,350.15 as interest on his notes maturing on November 1, 1912. Said payment was an overpayment of interest on the amount payable by him on that date to the extent of $1,248.48, subject to all defenses and claims against the same.
On December 7, 1912, the Thompson-Starrett Company maintained four accounts in plaintiff’s bank subject to check. These accounts were known as “ Plain,” “ Special No. 2,” “ Pay Roll ” and “ Pipeshop.” On that day, December 7, 1912, the plaintiff discounted the notes in suit and credited the Thompson-Starrett account in its bank with the net sum of $100,015.52, being the amount of the notes less discount; and on December 16, 1912, plaintiff is found to have become the holder of the notes for value. The court further found, in relation to this transaction, as follows:
. The only value given for the notes sued on was a credit to the deposit account of the Thompson-Starrett Company on the books of the banking department of the plaintiff; and at no time between the date of discount and the 19th day of December, 1912, were the moneys in such account to the credit of the Thompson-Starrett Company used, withdrawn or reduced below the sum of $42,609.39.
The said notes were discounted by the plaintiff on the 7th day of December, 1912, and the proceeds credited to the deposit account of the Thompson-Starrett Company. Between that date and December 19, 1912, the amount of moneys withdrawn from the said account amounted to the sum of $153,578.04.
There were deposits between the 7th day of December, 1912, and December 19, 1912, exclusive of the amount of said discount, amounting to the sum of $89,130.72.
The balance to the credit of said deposit account at the . close of business on the 19th day of December, 1912, amounted to $45,152.94.
The court has found that defendant duly performed all the conditions of the agreement between him and the ThompsonStarrett Company on his part to be performed, but that in its performance of said agreement the Thompson-Starrett Company was unskillful, negligent and wasteful; that it unreasonably and improperly delayed the work undertaken by it, and that its acts largely and improperly increased the cost of the work. Further, that the statements of cost rendered by the Thompson-Starrett Company under the agreement were false and fraudulent in that they contained charges for expenditures not belonging to the work and for moneys dishonestly appropriated by its agents, servants and employees, as well as for expenditures made in consequence of the unskillfulness, gross negligence and waste on the part of said company, its agents, servants and employees in the performance of said agreement. These improper charges were unknown to defendant when he received the statements of cost and gave his notes for the sums represented therein. It is further found that before the Thompson-Starrett Company indorsed and delivered to plaintiff the notes referred to in the amended complaint, it had notice of the facts set forth in the amended answer; and that before the Thompson-Starrett Company indorsed and delivered to plaintiff the notes referred to in the amended complaint, it had notice of the reservation by defendant of his rights and claims against said notes, as set forth in said answer.
Plaintiff, before paying for the notes set forth in the amended complaint, also had notice of the reservation by the defendant of his rights and claims against said notes, as set forth in the answer, and before the plaintiff had paid the full amount agreed to be paid for the said notes on the discount thereof, it had notice as well of defendant’s rights, claims and defenses, as set forth in said answer.
Before the plaintiff had paid the full amount agreed to be paid for the said notes on the discount thereof, it had notice of such facts as were sufficient to put it upon inquiry with respect to the rights, claims and defenses set forth in the amended answer, and if inquiry had been made the plaintiff would have ascertained the rights, claims and defenses set forth in said answer.
At the time the notes in suit were negotiated to the plaintiff it had notice that the title of the Thompson-Starrett Company, who negotiated them, was defective; and such title was in fact defective and, therefore, the court held that plaintiff had failed to sustain the burden of proving that it acquired title thereto as a holder in due course. The court also held that the Thompson-Starrett Company negotiated the notes in suit in breach of faith and the negotiation thereof was a fraud on the rights of the defendant. Further, that the amount due plaintiff from defendant under the agreement has not heretofore been liquidated; that the reasonable cost of the work performed and materials furnished by the ThompsonStarrett Company, together with ten per cent for plant and overhead charges, together with the five per cent of such cost as compensation to the Thompson-Starrett Company, is $72,644.95. Plaintiff paid $20,992.91_of this amount to the Thompson-Starrett Company on May 1, 1912, leaving a balance due of $51,652.04. The amount of overpayments of interest made by defendant to the Thompson-Starrett Company, with interest thereon to November 1, 1913, is $1,696.26. On November 1, 1913, defendant was indebted to the Thompson-Starrett Company in the sum of $53,150.64, being said sum of $51,652.04, together with interest thereon from November 1, 1912, to November 1, 1913, less said sum of $1,600.52.
On May 2, 1913, defendant paid to the Thompson-Starrett Company the sum of $2,421.82, being in payment of a note representing interest upon the notes theretofore given by defendant to Thompson-Starrett Company in connection with the said agreement; such payment was made pursuant to an agreement that the same was made without prejudice or waiver of any rights or claims that defendant might have against the notes then held by the Thompson-Starrett Company on any account in connection with the agreement above mentioned, such being expressly reserved by defendant.
The court has found as to the two corporations, plaintiff and the Thompson-Starrett Company, that neither is a subsidiary of the other, nor is there any substantial identity between them. The Thompson-Starrett Company is capitalized for $2,000,000, divided into 15,000 shares of common and 5,000 shares of preferred stock, all of the par value of $100 per share. On November 3, 1913, the said promissory notes were duly presented for payment to the maker and payment thereof was demanded and refused and said notes were then and there duly protested. The cost of said protest fees was $2.54, which sum was a proper charge therefor. No part of the principal, interest or protest fees has been paid.
The court has found as conclusions of law:
1. The plaintiff did not take the said notes in good faith.
2. There was a partial failure of consideration for said notes, which is a defense pro tanto to said notes.
3. The plaintiff is not entitled to recover upon the notes set forth in the complaint, but only for the reasonable cost of the work done under the agreement made between the defendant and the Thompson-Starrett Company under date of August 17, 1911, plus five per cent.
4. The plaintiff is not entitled to recover interest.
5. The title of the Thompson-Starrett Company to the notes in suit was defective.
6. The plaintiff is not a holder of the notes in suit in due course, and is only entitled to recover the amount which was actually due the Thompson-Starrett Company.
Judgment was directed in favor of plaintiff in the sum of $53,150.64, with costs.
There is a sharp conflict of testimony as to many important points in the case, but the learned trial court, with the opportunity of observing the demeanor of the witnesses, resolved the disputed questions of fact in favor of defendant, and in its opinion referred to the frequent contradictions in their own statements made by plaintiff’s principal witnesses; their truculency under cross-examination; their unwarranted attacks on defendant; the refusal to allow an examination by defendant’s counsel of the books and vouchers connected with the work done, even after the legal adviser of the ThompsonStarrett Company had consented thereto, and the efforts to hinder the taking of depositions of witnesses for the defense. The court further said: “ In contrast, the testimony of the defendant was given in a straightforward manner, and was consistent with and corroborated by the contemporaneous letters and documents.
“ Where, therefore, his testimony conflicts with the witnesses for the plaintiff, I unhesitatingly accept his testimony. The plaintiff not only has failed to establish by a fair preponderance of the evidence that it was a holder of the notes in due course, but the defendant has established facts tending to prove the contrary.” (155 N. Y. Supp. 333, 343.)
Defendant’s testimony shows that he is an attorney at law of over thirty years’ standing, admitted to practice in the State of Illinois and in the United States courts, with offices in Chicago and New York. His time is spent about equally between those two cities. He has large business interests and is general counsel for various important corporations, of many of which he is a director. Prior to the transactions involved in this suit, he had business relations with the ThompsonStarrett Company in the erection of the Insurance Exchange Building at Chicago, valued at some millions of dollars and of which he and E. R. Graham of Chicago were equal owners. This building was in course of construction in August, 1911, and on the tenth or eleventh of that month, in New York city, defendant met Louis J. Horowitz, president of the ThompsonStarrett Company. Defendant thus narrates the conversation between them: “ I told Mr. Horowitz that I had talked to Mr. Graham about the project that I was interested in in Wyoming; that it needed completion, and asked him to indicate who would be a proper person or proper concern to undertake that work. He suggested that I take it up with Mr. Horowitz of the Thompson-Starrett Company. Mr. Horowitz said to me that Mr. Graham had already discussed — had already talked to him about it, and that he had told Mr. Graham that he would be very glad of the opportunity to show his appreciation of what I had done for the Thompson-Starrett Company to undertake this work for me. I told him that I had a large investment there, that I had acquired bonds to the amount of about $150,000, that I had put in further money in connection with the project, and that it was not entirely completed, that I understood not very much was required to be done, that it all could probably be finished by the end of September, and I should like to know whether they were in position to undertake it, whether they would. He said that — ‘ yes, I will be very glad to do it. As I told Mr. Graham, I want to show my appreciation for what you have done for us, and we are perfectly equipped to undertake the work; we have an office in Salt Lake City; we have a representative there, Mr. Morton, who is specially qualified to look after it, and we would be very glad to do the work at cost plus five per cent commission.’ I told him that I was not familiar with the details as to just how much was to be done, but that Mr. O’Neill through whom I was interested in this situation and who had agreed when I bought these bonds that they should be taken off my hands at a slight profit within a given time, would know more about it, and I would like to know when Mr. Horowitz could take the matter up with Mr. O’Neill in Chicago and discuss the details with him. Mr. Horowitz said he was going to Chicago in a few days. I told him I would arrange for an appointment for him with Mr. O’Neill in Mr. Graham’s office in Chicago, which I accordingly did; ” and further: “ I told him [Horowitz] that I was anxious to realize upon this investment, that the autumn months was [sic] the period when property of this kind could be sold, and I understood there was not more than enough required to be done, as I said before, beyond September. I was very anxious to get it done properly, and wanted to know if he could do .the work at once, whether they were in position to do so, and also wanted to be sure that it was done at the lowest possible cost. He said, ' Mr. Pam, you can rely on our doing it at minimum cost. It shall be done as speedily as anybody can do it. Mr. Morton, as I say, is well qualified if he will give it his personal attention.’ * * * He [Horowitz] said ordinarily they would not be interested in the job because it was too small, but because of the things I had done for them they would undertake it upon the terms stated.”
It was stated that payment was to be made by defendant’s notes, payable May 1, 1912, with interest at six per cent upon statements to be furnished by the Thompson-Starrett Company as to the cost each month. On August seventeenth Horowitz called at defendant’s office in Chicago, and said he had seen O’Neill and gotten from him a pretty fair idea of what the work was and that he thought it ought to be finished within thirty days or thereabouts, but he could not tell because he had not received enough details, whereupon defendant suggested a meeting upon the work itself between O’Neill, Whiting, the engineer on the job, and Morton, the representative and manager of the Thompson-Starrett Company at Salt Lake City. Horowitz said he would telegraph Morton promptly. Defendant suggested putting their arrangement in the form of a written communication, to which Horowitz replied: “ Certainly, we are quite prepared to go ahead with it now, and if you will dictate a letter embodying the terms and the suggestions that we have agreed upon, it will be satisfactory.” Defendant thereupon dictated the following letter in Horowitz’s presence, who said it was satisfactory and asked that it be sent over to his office, when he would return an acceptance thereof:
“ Chicago, III., August 17, 1911.
“ Thompson-Starrett Company,
“ 51 Wall Street, New York:
“ Gentlemen.— I am sending you herewith drawings and general specifications for reinforced concrete facings to be constructed on the North Laramie Land Co.’s project near Uva, Wyoming.
“ I desire you to put yourselves into communication with Mr. J. A. Whiting, Engineer, Cheyenne, Wyoming, who will give you any additional necessary information and instructions you may require for the purpose of executing this work.
“ I herewith employ you to execute such work as Mr. Whiting may direct you in writing to execute, upon the understanding that I will pay you for this work on the basis of cost to you plus five (5%) per cent, of the cost for your profit.
“ I agree that your cost is to include expenses of every nature incurred by you, including railroad transportation, board bills, and wages of people employed entirely or in part in connection With this work.
“ You are to render to me monthly statements showing the cost to you of the work at the end of each month. To this cost you will add the 5% commission above referred to. Against such bills I will give you my promissory notes with interest at the rate of six (6%) per annum, maturing May 1st, 1912.
“As soon as practicable for you to do so, I will be glad to have from you an approximate estimate as to the total probable cost of the work ordered up to any one time, such estimate of course to be in no way binding upon you.
“ Yours very truly,
“ MAX PAM.”
To this the following reply was sent:
“ Thompson-Starrett Company,
“ Building Construction,
“ Fisher Building, Chicago.
“ August 17, 1911.
“ Mr. Max Pam, The Rookery, Chicago:
“ Dear Sir.— Your letter of August 17th received.
“ In pursuance with the directions therein contained, we will proceed with the work under the terms enumerated in your letter under reply.
“ Yours very truly,
“ THOMPSON-STARRETT COMPANY,
“ L. J. Horowitz, President."
Defendant thereupon prepared a letter of instruction to the engineer at the work, Whiting, and sent a draft thereof to Horowitz. To this the latter replied, as follows:
“ Thompson-Starrett Company,
“ Building Construction,
“ Fisher Building, Chicago.
“ Mr. Max Pam, “August 17, 1911.
“ The Rookery, Chicago:
“ Dear Sir.— We notice that your letter to Mr. Whiting calls upon him to approve our monthly vouchers for work done. In as much as this approval is not provided for in our agreement, I would suggest that you write Mr. Whiting a letter advising him that such approval is unnecessary.
“ Yours very truly,
“ L. J. HOROWITZ,
“ President.”
In view of what subsequently transpired, and the way in which defendant’s interests were treated by the ThompsonStarrett Company, it is very significant that the provision thus objected to by Horowitz was as follows: “ Vouchers are to be presented by the contractor from time to time which you are to examine and approve as engineer.” Defendant upon receipt of this letter called up Horowitz and as the result of their conversation withdrew this instruction, which if agreed to by Horowitz, would have furnished defendant with adequate protection against fraud, mistake or overcharge during the progress of the work. Defendant testified as follows: “ I called him up and said to him, ‘ Why is it, Mr. Horowitz, that you want me to strike out of my letter of instructions to Mr. Whiting the provision that he should pass upon it and approve all vouchers and expenditures.’ I said, ‘ That would be the one means I would have of keeping track, in a way, of the cost and the expenditures.’ He said, ‘ I make that suggestion in your interest. We don’t know Mr. Whiting, we know him as an engineer, we don’t know what kind of experience he has, and engineers are usually technical and captious, and it would interfere and delay your work, it would very seriously interfere with our efficiency.’ ‘ Well,’ I said, ‘ That is all right, but I want to get some idea of the cost as we go along.’ 1 Well,’ he said, ‘ Mr. Pam, you know we are taking this job with the idea of rendering you the best possible service. You can rely upon me that no expenditure will be made excepting that it is necessary, and the' expenditures and the cost will be kept down to a minimum. Indeed, we will deal with this job as though we were doing it for ourselves. Mr. Morton will look after it carefully and give it his personal attention.’ I said,
' Very well, Mr. Horowitz, I am going into this thing with you, this arrangement, and I will put myself in your hands, and will modify my letters of instructions to Mr. Whiting, and therefore eliminate all question of his having to approve the vouchers and the expenditures.’ And I accordingly modified the letter and excluded that part of it which Mr. Horowitz asked me to.”
The letter, with the provision in question omitted, was sent to Whiting and is dated August 17, 1911. Among other things it advised Whiting that the Thompson-Starrett Company was undertaking the work largely because of its friendship for defendant; he had absolute faith in the integrity of the contractor, and for that reason he was taking no estimates. He also instructed the engineer that his purpose was that the work should be completed so that it could be properly certified by Whiting as engineer and be approved by any engineer who might want to look at it at the instance of any proposed purchaser, and that while defendant purposed to pay cost to secure completion of the project, he did not want to spend money unnecessarily, and, therefore, would like the project completed substantially but as economically as conditions permitted.
Morton, manager of the Thompson-Starrett Company at Salt Lake City, wrote Horowitz, as its president, a letter dated August 30, 1911, a copy of which the latter transmitted to defendant under date of September fifth, in which Morton said that he had made a careful examination of the Laramie project on the ground with O’Neill (secretary of the irrigation company) and Whiting, its engineer, and had reached the opinion that the work already done was badly done and the whole proposition showed lack of foresight and poor management. He gave a detailed description of the project and the work already done upon it, discussed future operations to complete it, and said he had just finished a preliminary estimate for the purpose of ordering the necessary materials, and while the estimate was not intended to be accurate in any way as to final quantities, it was close enough to give an approximate idea as to what the work would cost. He described the work covered by the order to the Thompson-Starrett Company and said: “All of the above is subject to such omissions or additions as may be found advisable when the work is under way, but, assuming that no great changes will be ordered, the probabilities are that the cost of this work will run somewhere in the neighborhood of $30,000.” To this letter Horowitz replied as follows:
“ Thompson-Starrett Company,
“ Building Construction “ Office of 51 Wall Street
“ L. J. Horowitz New York, Sept. 5, 1911.
“ President “ Mr. L. J. Morton,
“ c /o Thompson-Starrett Company
“ Salt Lake City, Utah:
“ Dear Morton.— laramte project
“ Your letter of August 31st enclosing the report in duplicate received. This is exactly what I wanted.
“ Please bear in mind that Mr. Pam has in mind an expenditure of about $30,000.00, and, while our contract with them makes them hable for any expenditure we make, so long as it is authorized by the engineers, still I would not like to go ahead with any project involving the expenditure of much more money than the amount named, without first calling his attention to it. Very truly yours,
“ L. J. HOROWITZ,
“ L J H — S2 — 4 President
The Thompson-Starrett Company forwarded to defendant on October 25, 1911, a detailed “ list of vouchers ” showing the expenditures for the months of August and September, amounting to $172.62 and $8,208.86, respectively. On November ninth the company wrote from its New York office to defendant at his Chicago office, requesting that he send it a note payable May 1, 1912, for the amount of these two statements, “ as we have spent considerable money on this operation to date.” On November tenth the company sent a further itemized statement for $14,059.13, covering the October outlay. Defendant made and delivered his two notes for the aggregate of these three months, dated November seventeenth.
Meantime Morton had telegraphed Horowitz under date of September twenty-fifth that the Uva job would take three months more to finish and upon this being called to defendant’s attention he reminded Horowitz that it was understood the work should be finished in the autumn, and in November he asked Horowitz to find out the condition of the work and the time and expense still involved. In December defendant asked Horowitz for a definite estimate of the cost of the work, and received a letter from him inclosing a letter sent to him by Morton, under date of December 13, 1911, stating that the work had been held back greatly by unfavorable weather for the preceding six weeks, winter having set in earlier than at any time during the last twelve years; that the cost of work since November had been higher because of the weather; that Whiting was afraid to have any more concrete work done till about March first, but wished team work continued throughout the winter; that additional work had been ordered by Whiting, and that he had reminded the latter that his (Morton’s) approximate estimates submitted to defendant had shown that the cost of the work as ordered would run about $38,500, while the work then included and the extra expense incurred by working in bad weather would make the job cost something over $60,000. Morton gave the then condition of the work and concluded: “All of the remaining ditch work will be finished up during the winter so that when spring opens we will have only to do the concrete work on No. 1 dyke and No. 3 dam to have the whole project entirely completed.” Morton signed his letters as manager of the Thompson-Starrett Company.
On January 17, 1912, the following letter was sent by the Thompson-Starrett Company to defendant:
“ New York, January 17, 1912.
“ Mr. Max Pam,
“ The Rookery,
“ Chicago, 111.: uva job.
“ Dear Mr. Pam.— You have now in your possession statements showing expenditures made by us amounting to between $29,000 and $30,000, a large part of which represents expenditures made about two months ago.
1-
“ I dislike very much to bother you, but our need for money, together with the criticism of our Auditing Committee, are responsible for my imposing on your good nature.
“About two weeks ago you told me that in a few days thereafter you would check up our account and send us a note.
“ May I suggest that you give us your note for the amount of our statements with the understanding that if before we render a further statement you find any errors in checking up the account, such errors shall be corrected in connection with the following payment.
“ What I suggest is that you give us your note for $29,000.-We will get the money, and you can take your time to do the checking without inconveniencing us by depriving us of the use of the money we have already laid out.
“ You will understand, of course, that I am not asking you to do any more than it has been agreed should be done, but I would not even ask for that if it were not for the necessities of the situation. Yours truly,
“ L. J. HOROWITZ,
“ LJH-WH-2. President.”
In New York city about January 22, 1912, defendant called up Horowitz on the telephone and told him that: “I had received that letter, that I had not given him the note for December which was received subsequent to the time for November, because the two items together aggregating nearly $30,000, had already run within a very few thousand dollars of the entire financial estimate made by Mr. Morton of $60,000, and I was dissatisfied and was worried about these increasing costs, and I wanted to «know from him what it meant. I wanted to get some explanation. I wanted some assurances, and he said, ‘ Mr. Pam, I have told you that your job is receiving Mr. Morton’s personal attention, you can rely upon the fact that Mr. Morton is giving it every possible attention towards getting the cost down, and if what is said is not true it would not be so.’ ‘Well,’ I said, ‘Mr. Horowitz, there is some way of limiting this cost.’ He said, ‘ In my judgment this cost is entirely due to the weather, as Mr. Morton reports, you can rely upon the integrity, upon the correctness of the representations; and if the cost exceeded $60,000, it would be very small, if anything.’ I said, ' Mr. Horowitz, I will send you over those notes,’ and I gave him the note of January 24th * * * for $29,956.18.”
Under this new and modified arrangement, neither defendant nor his engineers had any cost data or material to work from. Defendant testified: “ I had these records, these vouchers contained a supposed labor sheet and supposed vouchers, receipted vouchers, of things that they had sent on. I knew nothing about any of the matters stated in any of those statements or vouchers, and all I could do was to rely upon their representations that those were the costs, and I simply checked up in this; there was an addition made of the items with totals, to see that the figures agreed, that was all.” He had no means of testing or checking up either the necessity or honesty of the expenditures, or whether the work had actually been done upon the job.
The next conversation between Horowitz and defendant took place in the former’s office in Chicago in March, 1912. Defendant was then negotiating for the sale of the entire Uva project, and said to Horowitz that the last information he had about the progress of the work was in a letter from Morton about December thirteenth, wherein it was stated that the work would be finished about April first and as the representative of the proposed buyer was waiting to look it over before a final decision, he (defendant) wanted to be sure when the work would be finished. He told Horowitz that he was offered certain improved real estate in Chicago in exchange for the project and Horowitz volunteered to, and did in fact, examine these properties and strongly advised defendant to close the deal. Defendant told Horowitz he wanted to make sure the work was finished, so the proposed purchaser could examine it, and added: “ Besides, Mr. Horowitz, I have just signed another note which already exceeds the final estimate upon the work as generally understood by everybody by over $10,000, and it is imperative that I be relieved of this burden, that I put myself entirely in your hands, and I have been relying upon what you have assured me would be the minimum cost of this project.” He said,' “ I shall instantly telegraph Mr. Morton. I feel confident that that property must be ready for inspection.”
The Thompson-Starrett Company’s statement to defendant for November, 1911, called for $16,486.69 and for December for $13,469.49. Defendant gave his note for the aggregate, dated January 24, 1912, payable May first.
On March 15, 1912, defendant gave the company his note for $14,781.93, payable May. first, for the statements of expenditures rendered him by the Thompson-Starrett Company for the months of January and February.
There had been telegrams between Horowitz and his company’s manager about the condition of the work and then defendant telegraphed direct to Morton as follows:
“ Thompson-Starrett Co.
“Salt Lake Office “ Received 1 p. m. “ April 9, 1912.
(( Chicago apr. 8-12.
f(141)
“ L. J. Morton.
“ Thompson-Starrett Co. Salt Lake, Utah:
“ I have relied upon the assurances of Mr. Horowitz that the work at Uva would be done as economically and expeditiously as possible. The cost thus far is many times the estimate made and is appalling and still the work is not completed, the water is rising, the reservoirs and ditches are not ready. I was assured and felt that it was unnecessary for me to have a personal representative on the ground to assure economy and speed. I was hopeful with the approach of spring I could do something with the situation, and now that there is offered to me a favorable proposition for the sale of the whole project am unable to meet it. I want to know now definitely when the work will be completed and the water turned in.
"MAX PAM."
Morton replied as follows:
"SALT LAxe Cin~, UTAH, April 9, 1912.
"MAX PAM,
"The Rookery,
“ Chicago, Illinois:
“ Completion of work at Uva depends largely on weather. We will probably turn water into first and second reservoirs before April thirtieth. Work on third reservoir and other work ordered will require over two months. We have handled job as economically and expeditiously as possible but have been badly handicapped by unfavorable weather during last five months. Our estimate covered only work ordered at the start and was based on the expectation of fairly decent weather. A large amount of very expensive additional work has been ordered from time to time and the cost of all work has been increased by reason of bad weather.
“ L. J. MORTON.”
Morton sent the telegram and a copy of his reply to Horowitz at the New York office of the Thompson-Starrett Company.
On April tenth the company sent a statement to defendant of the expenditures for March amounting to $3,814.19.
Horowitz on April fifteenth sent to defendant a letter received by the former from the manager at Salt Lake City, Morton, in which the latter said that while the cost of the work had been increased by extremely bad weather, the real reason why the total cost on the job was running to such a large figure was that Whiting, the engineer, had found it necessary to do over practically all of the existing ditch work, besides putting in new ditches and none of this work was contemplated when the estimate of $30,000 was made; moreover, additional work had been ordered and Whiting, he claimed, had expressed no dissatisfaction with the way the work was handled.
Defendant, however, who had lost the sale of his project, was not satisfied with the explanation given for the delay and the constantly increasing cost. On April twenty-ninth defendant and Horowitz met at the former's Chicago office and he thus describes the interview: “Mr. Horowitz came to the office. I called his attention to the fact that the amount of the cost up to that time had very considerably exceeded the $60,000. I also said to him that the job not having been finished, I had lost the opportunity of realizing, because the Cudahys would wait no longer for the completion of the job had gone elsewhere and bought — and contracted for another piece of property, that the notes were coming due, that I had given on May 1st, and that I objected to the payment of those notes in view of the excessive cost and because of the delay which had been encountered and indulged in by these men; that the first assurance I had was that job would be finished in the early autumn. The next statement was that it would be finished in January; that my first estimate was $*30,000, which was finally increased — which was subsequently increased to $38,500; that it was later, in December, I received a final estimate for the work as it was completed to be $60,000; that I had relied implicitly upon his assurance that the work would be done expeditiously, that the work would be kept down — the cost would be kept down to a minimum, and that Mr. Morton would give it attention and that I need not have anybody on the ground. I said I had reached the point where I was unwilling to pay these notes without some investigation on my own account with reference to the correctness of the situation. He said that what he would like to have me do — ' You know/ he said, ' You probably exaggerate your ideas of inattention. I am confident that Mr. Morton has given it every possible attention, and that the cost is no more than it should be; that the increase was due largely to the weather conditions and to the additional work ordered by the engineer.’ I told him that I had no information on that subject except their continuous statement to me in their correspondence of that fact, that before making any payments I wanted to have some knowledge upon the subject and I wanted to write Mr. Whiting and get some information. He said that — he said, ' I suggest that you pay down this amount of notes to $50,000, and renew the $50,000 until November 1st, and in the meantime you can make whatever investigation and inquiry you care to, so as to satisfy yourself that what we have said to you — what I have said to you continuously is correct.’ I said,' Mr. Horowitz, what about the balance, is there any assurance, is there any indication what I am to meet there? ’ He said, ' Let whatever balance there is, let that — make your notes payable November 1st, so that in the meantime the work will be completed, and then if there is anything wrong it will be corrected.’ He said, 'As I wrote you a few days ago, referring to the letter of April 15th, I am absolutely sure that this work cost you infinitely less by our doing it than if anybody else had done it.’ I said,' Well, I am willing to do that; I am willing to pay you down to $50,000, and then in the meantime I will give you these notes, but there must be some adjustment between now and November 1st and find out exactly what is right.’ He said, ‘ That is perfectly satisfactory to me. I will find out what the amount is so that we can figure it out.’ ”
On the next day Mr. Ho'rowitz, in Chicago, telephoned the defendant that he had learned from his office in New York the amount of the notes and the interest up to May 1, 1912, and that it was $72,225.10, and stated that the defendant should send over in accordance with the arrangement made the ■day before a check for $22,225.10 and his note of $50,000 payable November first, which the defendant did, accompanied by the following letter:
“ The Rookery, Chicago, April 30, 1912.
“ Mr. L. J. Horowitz, President,
“ Thompson-Starrett Company,
“ Chicago, Illinois:
“ Dear Mr. Horowitz.— In accordance with your conversation over the telephone, I herewith hand you check for $22,225.10 and note for $50,000 payable on or before six months from May 1st, 1912, account my notes and obligations held by you in re North Laramie Land Company.
“ Please return to my office in New York, notes which you now hold.
“ Yours very truly,
“ Enclosures. MAX PAM.”
Whiting had criticized the conduct of the work in a telegram to defendant dated May seventeenth, and when a copy thereof was sent by defendant to Horowitz, he replied that in his opinion Whiting was unjustified in his criticism, that he was trying to throw the blame off his shoulders because he had made too low an estimate and that as the company had taken the work as an accommodation to defendant, it would not be displeased if he followed Whiting’s suggestion and take the work out of the company’s hands, putting it entirely under his supervision.
On May 13,1912, defendant was furnished by the ThompsonStarrett Company with a statement of expenditures for the month of April amounting to $11,583.48.
Telegrams passed between the Thompson-Starrett Company and Whiting in April, and Morton, the former’s manager, and its superintendent at Wheatland, Wyoming, H. J. Jennings, in relation to the opportunity which defendant had of disposing of the project and the telegram from the company to Jennings was as follows:
“ Salt Lake City, Utah,- April 22, 1912.
“ To H. L. Jennings, Superintendent,
“ Thompson-Starrett Company, Wheatland, Wyoming:
“Mr. Whiting advises us that it is necessary to have all work completed as quickly as possible. If you can secure a larger force and can use same to any advantage in completing the work earlier, do so at once and advise us.
“ L. J. MORTON.”
On June 3, 1912, Whiting wrote to defendant complaining of the dilatoriness of the company and specified various details of carelessness or incompetency in the doing of the work. He also said: “The Thompson-Starrett Company are excellent contractors on city work but their methods of handling your project is too raw and mostly due to the selection of a totally unfit man for the position of superintendent.” A copy of this letter was sent to Horowitz, who sent same to the ThompsonStarrett Company, Manager Morton, with this letter:
“(On letterhead of:) Thompson-Starrett Co.
“New York, June 10, 1912.
“ Mr. L. J. Morton, Manager,
“ Thompson-Starrett Company,'
“ 361 Main Street, Salt Lake City:
“ My dear Morton.— uva job
“Mr. Max Pam sends me this copy of a letter received by him from Mr. Whiting, following a statement by him to me that things in Uva are so bad as to bear investigation. He charges not only extravagance, but has reason to believe that there has been some dishonesty on the part of the people in charge at Uva.
“ I do not know just how closely you kept in touch with this matter to be able to make up my opinion as to whether there is any ground for Pam’s charges, or whether Mr. Whiting is making statements which have no basis of fact. At any rate, the matter is serious, and I would like to have a full and complete report from you on the subject.
“ Yours truly,
“ L. J. HOROWITZ,
“ President."
On June 13, 1912, the engineer, Whiting, wrote to O’Neill, through whom defendant became interested in the Uva project, setting forth in detail various reasons why the job had cost far in excess of the estimate. This letter was communicated by defendant to Horowitz, and a copy thereof forwarded by him to Morton and it was the subject of discussion between Horowitz and defendant. In this letter Whiting admits that the cost of the work was excessive. He states that: “ The Salt Lake Branch of the Thompson-Starrett Company when they began construction of the project secured the services of a man for Superintendent whom th.ey did not know other than his letters showed he had performed some work for them at some other branch. This man is directly under the Salt Lake Office. However the Manager does not visit the work very often and the Superintendent has his own way most of the time. While I am able to make them put in the proper work I have no authority to discharge this Superintendent or any of his men. I can suggest and demand better efficiency but cannot force them to do so. In fact I am ignored most of the time as regards suggestions. I have frequently taken the matter of doing the work at a less cost with both Mr. Morton and the Superintendent with but little success.
“ .The Superintendent is on the work only a small part of the time. When he is he pays little attention to it with the results that there is a shortage in some particular material or special men most of the time. If the concrete force is large and able to handle much material there is a shortage of sand or gravel or cement. If the materials are abundant the force of men is insufficient. I might cite the case of putting a furniture maker as a foreman over earth excavation. When I objected to this and called the Supert. attention to the small amount of material being moved for the money was informed that his results were the best they had been able to receive. For the past two months the Superintendent has been learning to run an automobile that Mr. Pam’s money bought. Can I discharge this man or make him do different? I should say not. Does the Salt Lake City Office discharge him and put a new Supt. in his place? No. Every attempt is being made to discredit our work to cover up this additional expenditure. I have reason to believe that booze, joy-rides, etc., are charged to Mr. Pam.”
He narrates two incidents of alleged extravagant conduct on the part of the superintendent.
On June 25, 1912, Horowitz wrote to Morton, the manager of his company at Salt Lake City, and in his letter said he had received from defendant a copy of this Whiting letter and inclosed a copy of it to Morton. Horowitz said he had gone over his files and gotten out the letters he wrote to Morton when he turned over this work to him and that he had then tried to impress on Morton the following:
“A. That we were under many obligations to Mr. Pam, and for that reason it was most important to conduct this operation so as to furnish no good cause for criticism.
“ B. That I wanted you to carry on the job in such a way as to discharge, in part, the many obligations we are under to Mr. Pam.
“ C. That I represented to Mr. Pam you were well qualified to produce the very best results from the standpoint of economy, quality of work, and time of completion.
“ D. If it appeared to you, at any time, that the work was-going to cost more than Mr. Pam expected, or would take longer than the time allowed, you were to notify me promptly, with a view of my taking the matter up with Mr. Pam, and keeping him fully advised.
“ E. To avoid the work suffering through lack of attention, or lack of ability on the part of the Engineer in charge, I asked that you advise me if you had any criticism to offer.
“ F. If you experienced any delay that would adversely affect the work, I asked you to let me know so that such situation might be remedied.
“ G. That you cultivate Mr. Whiting with a view of promoting the harmonious and efficient conduct of the work.
“ In other words, I tried to cover the situation from every standpoint to insure a satisfactory result. You can imagine my disappointment, therefore, in having handed to me the letter, a copy of which is herewith enclosed.
“ The letter would indicate that you have fallen down in one or more of the matters I cautioned you against. What I am after now is to get at the exact facts of the situation. If what Mr. Whiting says is true, the Company can be charged with being either careless, incapable, or dishonest, or any two or all of these.”
He then reminded Morton that he had written him some weeks before and asked for a full report, but it had not been received; that he wanted Morton to make a full and .thorough report, to approach the matter with an open mind that the facts might be ascertained, and that if he, Horowitz, could not get them in any other way, he would go to Salt Lake City himself and made an investigation on the ground. He proceeds:
“ If the cost of this work bears one dollar of money that might have been saved through proper attention on the part of this company, or. its representatives, I want to be told frankly of this fact, so that we may return money improperly spent to Mr. Pam, because we can far better afford to lose money than to betray the confidence of our clients.
“ Specifically Mr. Whiting charges as follows:
“ A. That the Superintendent on the job is incomp.etent.
“ B. That the Superintendent on the job is careless.
“ C. That the Superintendent on the job is extravagant.
“ D. That you have not visited the work as often as you should have for proper supervision.
“ E. That the Superintendent on the job is more concerned in enjoying himself, and joyriding, than he is in properly supervising the work.
“ F. That all of the above has resulted in an excessive cost.”
Horowitz had received this letter of Whiting’s from defendant at an interview in the latter’s office about June twenty-second. Defendant said: “ ‘ Mr. Horowitz, here is a letter that I want you to take. If confirms what I have said to you heretofore, that this job is being recklessly and dishonestly conducted. I called your attention to these conditions, and apparently it has had no effect. You have constantly assured me that Mr. Morton was giving this job attention, and that I need not woriy about it, that you were confident that my feeling of inattention was exaggerated; ’ but he said ‘ I will take this matter up with Mr. Morton promptly, I will write him definitely and find out just what the facts are.’ And on the 25th I received from him a letter in which he enclosed a copy of the letters he wrote to Mr. Morton under that date. I told him in that interview that I had not kept any — made any effort with reference to the different complaints towards personal correction because I had had his repeated assurances that the matter was receiving attention. I called his attention to Mr. Whiting’s statement in the letter that Whiting had tried to convey to me things, and that when I had .mentioned the letter to Mr. Horowitz, Mr. Horowitz persistently insisted that I could depend upon their exercising the best of attention, and that they were carrying out their arrangement with me as their assurances that they were giving the job attention.”
Morton replied to Horowitz under date of June twenty-eighth, saying that Whiting had never expressed dissatisfaction with the superintendent; that he had asked on two occasions that certain things be done and his requests were complied with to the best of their ability, and in general disavowing knowledge of the basis for the complaints made by Whiting. He concludes: “ In concluding, I wish to say that I have absolutely nothing to reproach myself with in connection with this job, although I realize fully that I will be blamed for whatever dissatisfaction may exist as the result of it. I believe that the same result would have been achieved had the job been handled by anyone else in the company’s employ, and, since it seems to be a case where somebody had to be the goat, I suppose it might just as well be me as anybody else.”
This letter of Morton’s was communicated to defendant, by Horowitz in a letter in which he says: “ As far as this letter goes it bears out my suspicions in the matter.
“ Please advise what next you would like to have me do in the matter.”
In a conversation between them thereafter defendant advised Horowitz that he had sent all the vouchers to Whiting with instructions to prosecute the fullest investigation.
On July 23, 1912, Horowitz wrote to defendant and in the course of the letter said: “ My attention has been called to the fact that there is due from you $35,150.04, representing $17,739.50 for expenditures made by us during the month of May, 1912, and $17,410.54 for expenditures we made in June, 1912.
“ As we have laid out this amount of money I am being criticised for not collecting same, and I would ask you to kindly send us at once either your check or note to cover this amount, and oblige.”
Concerning this letter a conversation took place in New York between defendant and Horowitz. Defendant testified: “ I said to Mr. Horowitz that I was not disposed to give any more notes on this job; that since talking with him before I had learned from Mr. Hurd, who had seen Mr. Whiting, that Mr. Morton had not been on that job between December and the end of May; that I had been assured by Mr. Morton — by Mr. Horowitz that Mr. Morton would give