DANIELS v. GOLDBERG.

No. 21251.United States Court of Appeals, Second Circuit.
April 5, 1949.

Appeal from the United States District Court for the Southern District of New York.

Suit on a promissory note by Benjamin Daniels against John G. Goldberg which was removed to the federal court. Defendant’s motions to correct the stenographer’s minutes and to vacate the judgment were denied, 8 F.R.D. 580, and from a judgment on the verdict, defendant appeals.

Affirmed.

Plaintiff sued on a demand promissory note for $18,750, dated February 16, 1945. The suit, removed to the federal court, was begun on January 7, 1947. The trial commenced and ended in October 1948. In his answer, in addition to a general denial, defendant set up two affirmative defenses.[1]

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At the trial, witnesses for the defendant testified as follows.[2] The defendant was associated with the plaintiff and others for approximately fourteen years immediately before 1945, in the management of the Diamond Shoe Corporation which was the parent company of A.S. Beck Shoe Corporation, the operator of a large chain of well-known and popular price retail shoe stores. During this period, the defendant was generally in charge of the company’s production and, as such, materially contributed to the growth of the A.S. Beck Shoe Corporation. The plaintiff and his

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associates, who were the directors and controlling stockholders of the parent company, were enriched by virtue of their holdings of stock in the parent company. The defendant, on the other hand, held a comparatively small number of shares therein and did not likewise benefit. The defendant desired to acquire a substantial number of shares of stock of the corporation at a bargain price. The defendant was of the opinion that he was entitled to a greater share of the benefits of the business since he was primarily responsible for the great bulk of the company’s production. He took this matter up with the plaintiff and his associates who expressed agreement in the matter with the defendant, and the defendant was advised that ways and means would be considered of accomplishing the defendant’s desires. Negotiations between the defendant and the plaintiff and the plaintiff’s associates were had and salary increases for the defendant and stock transfers to the defendant or to members of his family in trust were considered but were abandoned because of salary stabilization restrictions and because of the tax laws. It was suggested by one of the plaintiff’s associates that if the defendant could purchase a shoe factory, supervise the management thereof and manufacture shoes for A.S. Beck Shoe Corporation, while at all times remaining an employee of the A.S. Beck Shoe Corporation, the defendant would be in a position to make a substantial profit and thereby accomplish his objective of being able to acquire more stock in the Diamond Shoe Corporation. The defendant explained that he had no money to purchase such a factory and that the idea was not generally acceptable to him because it would mean that on the one hand he would be working for A.S. Beck Shoe Corporation while at the same time selling shoes to his own employer. This would mean a divided loyalty on the part of the defendant and he did not know how such a situation would work out. The plaintiff and his associates urged the defendant, nevertheless, to accept such plan. The defendant examined several factories and made inquiries for offers of factories for sale. The opportunity arose to purchase a shoe factory in New Hampshire owned by one Max Rothbard, on terms which the defendant believed were advantageous. The defendant advised the plaintiff and his associates thereof and also of the fact that he required $150,000 in cash to complete the purchase. The plaintiff and his associates advised the defendant that they would not advance $150,000 to him, but were amenable to advancing $75,000 by a payment of $18,750 from the plaintiff and a like amount from each of the other three controlling stockholders of the Diamond Shoe Corporation. With this money the defendant was to attempt to purchase said factory. The plaintiff and his associates agreed that they would arrange for this factory to be repurchased from the defendant within five years by a corporation controlled by them or some person designated by them, at a price not less than $75,000 in excess of the price paid by the defendant, so that the defendant would be in a position to make a profit of at least $75,000 on the transaction. With this profit, it was generally understood that the defendant would be in a position to purchase the stock of the Diamond Shoe Corporation which he desired for his family’s protection in the event of his death. It was generally agreed that if the defendant could purchase the Rothbard factory he would be making an extremely favorable purchase, for the factory was well worth far in excess of what the defendant was to pay for it. It was further agreed that the $75,000 which the plaintiff and his associates were to advance to the defendant would be repaid by promissory notes payable in five years, secured by preferred stock of a corporation which the defendant was to form for the purchase of the said factory. The aforesaid five-year notes, it was also understood, were to be repaid out of the proceeds of the aforesaid sale by the defendant to the designee of the plaintiff and his associates. There was no agreement between plaintiff and defendant with relation to demand promissory notes. It was only when the defendant together with his attorneys, Mr. Sugarman and Mr. Bronstein, on February 16, 1945 attended at the office of the attorneys for the plaintiff to receive the money from the plaintiff and his associates that the subject of demand promissory notes was first introduced. At that time, Mr.

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Schlesinger, the attorney representing the plaintiff, produced four documents purporting to be demand promissory notes, and requested that the defendant sign them as evidence that the defendant received the money.

The testimony of defendant’s witness Bronstein as to what then occurred is as follows:

“Mr. Friedman said, `$75,000 is as much as we will go.’

“Q. Did anybody else say anything? Did you reply or Mr. Goldberg reply? A. Yes, Mr. Goldberg said, `Well, all right, gentlemen I will take the $75,000 and I will go back and try the plant from Mr. Rothbard and report to you.’ I think it was Mr. Friedman who said, `And what about the $75,000?’ Mr. Goldberg said — I take that back. Mr. Friedman said, `What about the $75,000?’ and Mr. Goldberg said, `Well, there is absolutely no way that you gentlemen can be paid back for the plant unless you buy it, but you have got to give me time to work it out.’ Mr. Friedman then suggested the following: take the $75,000 to Boston and try and buy the plant for $75,000. If you are unsuccessful send us back the checks for the $75,000. If you are successful then we will take from you five-year collateral notes secured by collateral of the preferred stock of the factory that you are going to set up. Now, the terms of that preferred stock must be the same as the terms to Mr. Rothbard and we will engage to buy that factory back from you within that period of five years so we can get repayment at a profit of not less than $75,000 to you, so that you can pay us back this money. * * * The last words were, well, it was lunchtime. `Let’s go to lunch and after lunch we could drop up to Mr. Schlesinger’s office and you get the checks.’ * * *

“Q. After lunch did you go to Mr. Schlesinger’s office? A. Yes, sir, we did.

“Q. Who went with you? A. Mr. Sugarman and Mr. Goldberg went with me, sir.

“Q. Did you see Mr. Schlesinger? A. Yes, sir.

“Q. Was there anyone with Mr. Schlesinger at the time? A. No, sir, except his stenographer came in once or twice.

“Q. So there were four of you in this room, is that right? A. Yes, sir.

“Q. You, Mr. Schlesinger, Mr. Goldberg and Mr. Sugarman? A. That is right, sir.

“Q. What happened there? A. Mr. Schlesinger stated that he had not the checks, but that Mr. Hausman had undertaken to collect the checks from the various gentlemen and that he would send them forward in a day or so, and he handed four documents to Mr. Goldberg to sign.

“Mr. Goldberg looked at them and turned them over to Mr. Sugarman, who turned to Mr. Schlesinger and said, `These are demand notes. That is not my understanding of what we agreed to this morning.’ Mr. Schlesinger said, `Well, I have to have a receipt to indicate your receipt of the money, and obviously if you don’t buy the factory then you are to send the checks back and you will get these notes back.’ * * * Mr. Sugarman then turned to me and I stated as follows: `Joe, it does not make any difference what the form of the receipt here today is. I don’t believe we can buy the factory, and if we don’t buy the factory, the deal is we are to return the very checks and so we get the notes.’ * * *

“Q. And you said that Mr. Sugarman demurred about the giving of a note?

A. Yes, sir.

“Q. The signing of a note? A. Yes, sir.

“Q. Mr. Schlesinger said it was merely a receipt? A. Mr. Schlesinger said, `I have to have a receipt that you are getting the money because if you don’t buy the factory you have got to give the checks right back.’ * * *

“Q. Was anything said about what would follow if you did buy the factory with respect to those papers that were signed? A. Yes, sir. I continued to Mr. Sugarman by saying, `And if we do buy the factory, Joe, obviously repayment could only be according to the deal and the repurchase of the factory.’

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“Q. Did Mr. Schlesinger hear you say that? A. Yes, sir.

“Q. Did he say anything? A. No, sir.”

Defendant’s witnesses further testified as follows:

The defendant purchased the aforesaid factory on February 28, 1945. In the purchase of said factory, the defendant supplied funds of his own in excess of the $75,000 received by him from the plaintiff and his associates to make up the $150,000 cash requirement of the purchase price. Shortly thereafter, however, the plaintiff and his associates sold out their stock interests in the Diamond Shoe Corporation to outside persons who took over the management of the said company. The defendant was ready, able and willing to deliver the aforesaid five-year notes and collateral and called upon plaintiff and his associates to deliver their written agreement incorporating the obligations aforesaid. The defendant was advised by the plaintiff and his associates that they did not intend to carry out the aforesaid agreement.

In his charge to the jury, the judge said, inter alia: “At the outset I want it understood that nothing I have said during the course of the trial should indicate to you any opinion that I may have of this case; because you are the sole judges of the facts of the case. The province of the Court is to pass on questions of law and the province of the jury is to determine questions of fact in accordance with the instructions of the court. * * * I direct you further that if you find any witness has testified falsely to a material fact, you may disregard his entire testimony, or you may accept such portions of it as you think are worthy of belief and reject such portions of it as you find are not worthy of belief. The law says that any contract on a negotiable instrument — and a note is a negotiable instrument — is deemed revocable until delivery of the instrument gives effect thereto, and where the instrument is no longer in the possession of the party whose signature appears thereon, a valid and intentional delivery by him is presumed until the contrary is proven. That means the note is not complete until it is delivered, but once it is delivered it is presumed to have been a valid delivery until the contrary is established.”

After describing the defendant’s first defense, the judge in his charge continued as follows: “The defendant’s second defense asserted during the course of this trial is that the plaintiff and his associates were interested in the Beck Company and that Goldberg was a valuable employee and he wanted an opportunity to buy some stock in the Beck Shoe Company; that it was finally arranged as a result of long negotiations that the plaintiff could buy a shoe factory, and out of the profits that he made from that factory he would be able to buy the stock of the Beck Shoe Company; that this note when delivered was part of the plan to accomplish for the plaintiff what he sought.”

After referring to the evidence, the judge in his charge also said: “In addition to that, the second defense of the defendant is that it was part of the agreement that these notes were not to be paid, but that these notes were delivered as part of the overall agreement between the parties, which were the lending of the money, the purchase of the factory, the resale of the factory and the payment of the money out of the excess. Unless there was a full and complete agreement between the parties, the plaintiff is entitled to recover on this note. If you find that the discussions which took place on the 15th and the 16th of February were as testified to by Dr. Klein, then the plaintiff is entitled to recover. If you find, however, that there was full and complete agreement but that this writing was only a small part of the overall agreement that the parties intended to put in writing at a later time, under those circumstances the defendant is entitled to your verdict. * * * I direct you further that if you find any witness has testified falsely to a material fact, you may disregard his entire testimony, or you may accept such portions of it as you think are worthy of belief and reject such portions of it as you find are not worthy of belief.”

At the close of the charge, on the suggestion of defendant’s counsel, the judge added: “The second defense also charges in addition to what I have already told you that in the event that the plant was

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purchased by the defendant, these notes, these demand notes, were to be substituted by five-year collateral notes.”

Defendant’s counsel thereupon said: “I except to that portion of your Honor’s charge that unless there was a complete agreement respecting the resale of the factory by the defendant to the plaintiff and his associates, or their designees, the plaintiff must recover.”

The judge denied the following requests to charge made by defendant: “If you find that the note in suit was delivered to Mr. Schlesinger upon the understanding and condition that it was to become enforceable only if the defendant or a corporation organized by him within a reasonable time failed to make purchase of the shoe factory, your verdict must be for the defendant. * * * Whether or not you find that there was a valid agreement by the plaintiff and his associates to purchase the factory from the defendant or his company, your verdict must be for the defendant if you find that the note in suit was handed to the plaintiff or his representative on the condition that it was to become enforceable only if the defendant failed to purchase the factory. You are not to decide whether the defendant Mr. Goldberg, owes the plaintiff Mr. Daniels, $18,750. You are only to decide whether or not the note sued on was handed to the plaintiff or his representative on the condition that it was to become enforceable only if the defendant failed to purchase the factory. If you find that there was such a condition, your verdict must be for the defendant.”

After the jury had retired, it requested that the testimony of plaintiff’s witness, Dr. Klein, be read to it. The record shows that the reporter then read that testimony to the jury. The jury again retired and subsequently returned a verdict for plaintiff, for the face amount of the note and interest. Judgment was entered on the verdict.

Thereafter, on defendant’s motion, the judge made an order correcting the stenographer’s minutes to show that, by inadvertence, he had omitted to read to the jury a portion of Dr. Klein’s testimony.

[1] The first defense reads in part as follows:

“At the time referred to in the complaint the plaintiff and three other persons each loaned to the defendant the sum of $18,750 or a total for all of $75,000. The defendant and the plaintiff and the three other persons above referred to had been associated in business together for a number of years. The purpose of the loan of moneys by plaintiff and said other persons to the defendant was to enable the defendant to purchase a certain shoe factory in New Hampshire. The document referred to in the complaint was handed by the defendant to the plaintiff upon the understanding, agreement and condition that it was to represent only a receipt for the moneys received by the defendant from the plaintiff as aforesaid, and that the defendant was to be obligated to repay said loan only upon the sale of the aforesaid shoe factory by the defendant to a purchaser produced by the plaintiff and his associates at a price of not less than $75,000 in excess of the price paid therefor by the defendant and said repayment was to be made only out of the said excess. The defendant purchased the said factory but the plaintiff and his associates have not produced a purchaser for such factory as aforesaid and said factory has not been sold. The condition upon which the document aforesaid was delivered has not occurred and the document referred to in the complaint never became effective.”

The second defense reads in part as follows:

“That on February 15 and 16, 1945, defendant and the plaintiff and his * * * associates entered into an oral agreement that plaintiff and his * * * associates would turn over to the defendant $75,000 (of which $18,750 mentioned in the complaint was a part thereof); that defendant would attempt to purchase a specific factory from one Max Rothbard and would himself furnish the funds or property required in excess of $75,000; that said factory would be run under defendant’s general supervision by defendant’s brother who was to give up his position with Diamond Shoe Corporation or some of its subsidiaries; that said $75,000 would be represented by promissory notes payable in five years, secured by preferred stock of the corporation to be formed for the purchase of said factory; that plaintiff and his said associates would cause Diamond Shoe Corporation or one of its subsidiaries to supply said factory with work, would purchase the output of said factory at a profit to the defendant, and that within said period of five years plaintiff and his associates would cause one or more of said corporations to purchase said factory from the defendant at a price which would yield the defendant a profit of not less than $75,000 over and above the defendant’s cost; and that the aforesaid five-year notes were to be repaid only out of the proceeds of the aforesaid sale of said factory. That at the time the instrument referred to in the complaint and three similar instruments signed by defendant at the same time in favor of plaintiff’s associates (Friedman, Davidowitz and Hausman), were delivered, it was expressly agreed that delivery was conditional and that they were not to become promissory notes for the payment of money unless defendant failed within a reasonable time to consummate the purchase of the aforesaid factory; and it was further agreed that in the event defendant did consummate the purchase of the aforesaid factory said instruments were to be replaced by new notes due in five years and secured by $75,000 par value of preferred stock of the corporation acquiring the factory with plaintiff and his associates obligated to supply work for the factory, to cause the factory’s output to be purchased at a profit and to cause the factory to be repurchased within said five-year period at a profit of not less than $75,000, and with said five-year notes to be paid only out of the said proceeds of the sale of said factory, all as alleged in said paragraph `13′ hereof. It was further agreed that if defendant succeeded in purchasing said factory, the agreements aforesaid between the parties would be reduced to writing and the defendant would deliver the five-year notes and collateral aforesaid. Defendant purchased the aforesaid factory on or about February 28, 1945 and defendant’s brother gave up his position with Diamond Shoe Corporation or some of its subsidiaries and started to operate said factory under defendant’s general supervision. In the purchase of said factory defendant supplied funds of his own to complete the purchase price. Shortly thereafter plaintiff and his associates sold or obligated themselves to sell their stock interests in the Diamond Shoe Corporation to outside persons who took over the management of said company. Defendant was ready, able and willing to deliver the aforesaid five-year notes and collateral and called upon plaintiff and his associates to deliver a written agreement incorporating their obligations aforesaid which plaintiff and his associates refused to do. Plaintiff and his associates further advised defendant that they did not intend to carry out their aforesaid agreements and ever since then have failed to comply therewith.”

[2] The summary is taken from defendant’s brief in this court.

Schlesinger Krinsky, of New York City (Robert E. Tinsley, of Malverne, N.Y., of counsel), for plaintiff-appellee.

Stroock Stroock Lavan, of New York City (Morton L. Deitch and Martin D. Eile, both of New York City, of counsel), for defendant-appellant.

Before L. HAND, Chief Judge, and CHASE and FRANK, Circuit Judges.

FRANK, Circuit Judge.

1. Defendant (relying on his exception to the charge and on the denials of his requests to charge) contends that the judge erred in telling the jury that it must decide for plaintiff unless “there was a full and complete agreement.” Defendant thus asserts that the jury should have been told that defendant must win if the jury found an understanding that the notes were to be replaced by five-year notes if defendant bought the factory.[3]
For the purpose of deciding this case, we have viewed it as if defendant’s answer had been amended to conform to the evidence, and have construed most favorably to defendant not only the evidence but the New York decisions relative to the parol evidence rule.[4] Even so, we perceive no error. We think defendant was not entitled to a verdict unless the jury found that the specific understanding (as to the replacement of the notes by five-year notes) constituted part of the entire agreement to which defendant’s witnesses testified. For there was no evidence of any such a specific understanding apart from such a larger agreement. Accordingly,

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the charge for which defendant contends was one which the evidence did not justify.

2. That part of Dr. Klein’s testimony which by inadvertence was not read to the jury contained nothing of significance which could have affected the jury’s verdict.

3. Defendant urges that the judge erred because he showed, in questions he addressed to one of defendant’s witnesses, that he did not believe that witness. But a federal trial judge is not precluded from explicitly saying to a jury that he disbelieves a witness, provided the judge also states that the determination of the facts is for the jury. The judge, in effect, so stated here. Nor can we agree that in any other respects the judge improperly conducted himself.

Affirmed.

[3] The five years had not expired at the time of suit or judgment.
[4] That is, for purposes of this case, we interpret the New York rule to be as follows: Where a note is delivered upon a condition that it is to be legally inoperative unless certain events occur, the note is to be regarded as if it had not been delivered unless those events occur. See, e.g., Niblock v. Sprague, 200 N.Y. 390, 93 N.E. 1105; Smith v. Dotterweich, 200 N.Y. 299, 93 N.E. 985, 33 L.R.A., N.S., 892; Jamestown Business College v. Allen, 172 N.Y. 291, 64 N.E. 952, 92 Am. St.Rep. 740; Hoagland, Allum Co. v. Allan-Norman Holding Corp., 228 App. Div. 133, 239 N.Y.S. 291.

CHASE, Circuit Judge (dissenting).

Because I do not think the charge permitted the jury to decide the vital issue of fact raised by the answer and supported sufficiently by the evidence to make the question a substantial one, I cannot agree with my brothers that this judgment should be affirmed.

The failure to charge the substance of the defendant’s request that there could be no recovery on the note if the jury found that it “was delivered to Mr. Schlesinger upon the understanding and condition that it was to become enforceable only if the defendant or a corporation organized by him within a reasonable time failed to make purchase of the shoe factory,” deprived the defendant of the heart of his defense.

Whether, in the light of the conflicts in the evidence the jury would have decided this issue of fact in favor of the defendant is beside the point. It should be enough for us that there was substantial evidence to show that this note was signed and handed over by the defendant upon the condition that it would not become effective as an obligation binding upon him in the event that he, or a corporation he formed for that purpose, did within a reasonable time buy the shoe factory. The details as to what should be done by way of payment of the loan if the note did not become effective were but a part of the circumstances surrounding the acquisition of the note by the plaintiff. However illuminating those details and an agreement complete as to them may have been in determining whether the note was delivered conditionally as the defendant claimed, failure in proof as to them did not nullify, as a matter of law, the conditional delivery of the note if the jury found that as a matter of fact.

On the contrary, the issue as to delivery was essentially as simple as this. The defendant pleaded and proved sufficiently to make it a question for the jury, that the note was delivered upon the firm condition that if the factory was purchased as contemplated this note should never become effective as his obligation. It is undisputed that the factory was purchased as contemplated. If the plaintiff acquired the note subject to the above condition it never became a valid and enforceable note.[1] Because the above request to charge was refused and the charge as given confused the question of the conditional delivery of the note with what would be an adequate defense to a suit to recover the amount of the loan, the defendant has not yet had the issue he actually tendered lawfully decided by a jury.

I should reverse and remand for a new trial.

[1] See Niblock v. Sprague, 200 N.Y. 390, 93 N.E. 1105.

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