
    Robert A. Lytle and Hannah Steininger, Appellants, v. James R. Crawford and Others, Constituting the Bank of Dothan, Respondents.
    
      Attorney and client—scope of the former’s authority — notes are merged in a judgment recovered thereon — thereafter they cannot as such be set up as a counterclaim — a judgment in another action in favor of the defendant must, to constitute a counterclaim,, be pleaded—when it must be set up by supplemental answer.
    
    An attorney engaged in the actual management of a cause may hind his client by admissions made while so engaged, or by statements and correspondence relating to the cause, but he has no authority under a general retainer to compromise the action or to bind the client by statements that he has no cause of action or that he has surrendered whatever rights he possessed.
    Promissory notes, upon which the holders thereof have recovered judgment against the makers, are merged in the judgment and the notes cannot be declared upon as such and be made the basis of a counterclaim in an action brought by the makers thereof against such holders.
    Under section 500 of the Code of. Civil Procedure, requiring new matter constituting a defense or counterclaim to be pleaded, a defendant is not entitled, under a general denial, to introduce in evidence a judgment, entered in another action between the same parties, where the effect is to admit the cause of action averred and proved by the plaintiff and defeat it by matter entirely extrinsic thereof.
    Even if such a judgment would otherwise be admissible under a plea of general denial, yet, where it appears that such judgment was not rendered until nearly five years after the commencement of the action in which it is sought to be introduced in evidence, the defendant must, if he intends to rely on the judgment as a defense, apply for leave to set it up by way of supplemental pleading.
    Appeal by the plaintiffs, Bobert A. Lytle and another, from a judgment of the Supreme Court in favor of the defendants, entered in the office of the clerk of the county of Hew York on the 11th day of June, 1901, upon the verdict of a. jury, rendered by direction of the court, and also from an order entered in said clerk’s office on the 18th day of June, 1901, denying the plaintiffs’ motion for a new trial made upon the minutes, and also from an order entered in said clerk’s office on the 26th day of June, 1901, denying the plaintiffs’ motion to amend the judgment entered as aforesaid.
    
      
      William L. Mathot, for the appellants.
    
      Percy S. Dudley, for the respondents.
   Hatch, J.:

This action is brought to recover for money had and. received by the defendants for the plaintiffs’ use, and the complaint contains appropriate averments .to state such' cause of action. .

The answer, after admitting the copartnership of the respective parties as averred in the complaint, denies the allegation of any sum due from the defendants to the plaintiffs. The answer then sets up counterclaims upon three separate promissory notes, executed by the plaintiffs, which were held and owned by the defendants, and demands judgment that the complaint be dismissed and that the defendants have judgment for the amount of the several counter^ claims. To. this answer a reply was served denying each and every allegation of the'matter averred in the counterclaims. . This action' was commenced on or about November 14,1892. It appeared from the evidence given upon thb trial that the plaintiffs were cotton brokers doing business at Dothan, in the State of Alabama, and that the general manager of such business was one Bower; that in the month of November, 1892, and prior to the commencement of this action, Bower, acting as such manager, sold to one Drewry forty-five bales of cotton, the purchase price of which was $1,566.12.

At the time of the sale, Drewry delivered his check drawn upon the defendants, who were engaged in the banking business at said place, to Bower for the purchase price of the cotton^ and thereupon Bower delivered receipts for the respective bales of cotton to Drewry, which were stored in the warehouse and which were necessary to produce a delivery of the same.

' Drewry delivered thése cotton receipts to the defendants. A short time after the transaction a bookkeeper in Bower’s office presented the check to the defendants for payment. The latter tendered in payment of the same $427.42 in cash and the three notes of the plaintiffs set.'up in defendants’ counterclaims, then past due and amounting with interest to $1,134. These two sums equaled the amount of Drewry’s check and another check drawn by'a third person and presented at the same time for $5-30.

The bookkeeper refused to take the notes in payment of the checks or to receive the cash, unless the whole amount was paid in money, and shortly thereafter, the two checks on their presentation having been retained by the bank, demanded a return of the checks or their payment in money. This was refused, except that thereafter the defendants tendered to the plaintiffs the amount of the small check. It appeared that plaintiffs claimed that the notes were forgeries, or, for some reason, that they were not liable thereon, but no evidence was given upon that subject. After the refusal to pay the check in money or to return the same, Bower notified Drewry of the situation and thereupon these parties entered into a new arrangement respecting the cotton. The testimony of the plaintiff tended to establish that Drewry, under the latter dealing, was to give and did give a due bill for ■ the cotton, and was to procure from the defendants the cotton receipts and deliver the same to Bower, and the due bill was to be paid from the proceeds of the cotton by Savannah exchange or otherwise. Presumptively, the arrangement was to make the cotton security for the payment of the due bill. Drewry obtained the cotton receipts from the defendants, but did not deliver them to Bower nor did he take any other steps in further fulfillment of this agreement except to make and deliver his due bill to Bower. On the contrary, after receiving the receipts for the cotton from the defendants, he delivered the same to his drayman, procured a bill of lading for shipment of the cotton, drew his draft for payment upon the cotton and delivered the bill of lading and the draft to the defendants, which was paid from a sale of the cotton, and the defendants received the proceeds. When Drewry’s check was received by the defendants they charged the same to Drewry’s account, but after learning of the subsequent transaction between Drewry and Bower they credited Drewry’s account with a corresponding amount and in effect assumed to cancel that transaction. Drewry testified that the check was never in fact delivered to him, but the defendants testified that it was so delivered, but was subsequently procured from him for the purpiose of use in an action brought in a court in Alabama wherein these defendants were plaintiffs and these plaintiffs were defendants, and that the check is now a part of that court’s record.

The last-named action was commenced by an attachment on the 30th day of November, 1892; the complaint was filed on March 20, 1893, and as appears thereby the cause of action was based upon the same promissory notes which form the counterclaims alleged in defendants’ answer in this action. Issue was joined therein by the filing of an answer on March 30,1893. In such answer the defendants set up the conversion of fifty bales of cotton by the- plaintiffs of the value of $1,500, which sum they asked to set off against the plaintiffs’ cause of action. The cotton alleged in the answer to have been converted is the same cotton for which the plaintiffs seek to recover in the present action. Other pleas of usury and forgery were interposed in that answer. Issue having been thus joined on March 9, 1897, a trial was had in the Circuit Court of Dale county in the State of Alabama, and judgment was rendered therein in favor of the plaintiffs for $1,641.09, with costs, but the amount of the costs awarded do not appear in the judgment.

It appeared upon the trial of this action that $1,900 had been paid upon this judgment, and that the whole amount due thereon was nearly $2,400. It did not appear, however, that the judgment itself had ever been discharged of record. The judgment roll in the Alabama action was offered in evidence and was objected to, among other grounds, as not having been pleaded. The court overruled the objection and received the evidence, not for the purpose of defeating the present cause of action, but as evidence of the validity of the counterclaims set up in the answer. What effect the court gave to this judgment when it came to direct a verdict does not clearly appear.

Upon this state of the record several very interesting questions arise. The trial court seems to have ■ held that the information which the defendants claimed to have received, that the original transaction in the sale of the cotton had been superseded by the subsequent arrangement between Bower and Drewry, whereby the latter took from the former a due bill, authorized the defendants to deal with Drewry as the owner of the cotton, relieved from any rights which the plaintiffs had acquired against them by reason of the non-payment of the check. Upon that subject it appeared that after the payment of the check in money had been refused Bower consulted with the firm of Pearce & Pace, lawyers, residing at Dothan, in -respect to plaintiffs’ legal rights in the matter.

The defendant James R. Crawford testified upon this subject-that after the check had been presented he saw Drewry, and in consequence of a conversation had with him, he went to the lawyers’ office where he had a conversation with Mr. Pace. Subsequently he testified that he 'had a communication with Bower the next day after the check was presented, and that the latter referred him to the lawyers, he stating that Bower said he had nothing further to do with it, that his attorneys would handle it.” He further testified that he relied upon what Pace told him as a friend. Subsequently he said, in speaking of his talk with Bower, “ I think it was before I went to Pearce & Pace, or just after; I think •possibly after, probably after. I would not be positive as to that. I went to Pearce & Pace at Drewry’s suggestion, and Pearce & Pace were friends of mine, and had been my attorneys; they represented us in some cases.” Again, in testifying as to Bower’s reference to his attorneys, he said, “ I would not be positive whether it was before or after ; 1 think though it was before.” And again he says, My recollection is, Drewry came to me first and told me the transaction had been canceled, and that I went with him to Bower and Bower referred me to Pearce & Pace, and I then went to them.” And again, Drewry suggested to go to them ; that they were his lawyers. Q. That they were Drewry’s lawyers ? A. Ho, that they were Lytle & Company’s lawyers; he told me the new transaction had been consummated in their office. I went to Bower afterwards and tendered him this $5.30.”

Upon this subject Bower testified that when Crawford came to him to pay the five dollars and -thirty cents he may have referred him- to the lawyers, but had no distinct memory upon that subject. The defendant testified that when he called at the office of Pearce tk & Pace the latter told him that the check transaction had been canceled and that Drewry had given Lytle & Co. his due bill for the cotton; that he then asked him about the check that Drewry had given, and Pace said it was not worth anything and should be returned to Drewry, as they had made a new sale. The defendants claimed that pursuant to this transaction they canceled the check by crediting Drewry with its proceeds.

The plaintiffs objected to the introduction of the conversation which the defendant had with the lawyers. Assuming for the moment that the conversation was admissible, and that Pearce & Pace had authority to make a statement which would be binding upon the plaintiffs,-it is by no means clear that the défendant applied to the lawyers by virtue of any authority given by the plaintiffs, through Bower or otherwise. The defendant’s first statement is, that he applied to the lawyers at the instance' of Drewry; and again, at his own, as friends of his; and again on account of Bower’s reference, and then was uncertain whether Bower’s reference was before or after the conversation; that it was when he went to tender the five dollars and thirty cents, which lie, states was after his conversation with the lawyers; and, finally, that he was referred by Bower to them before the conversation. It is clearly evident that upon those conflicting statements a question of fact was- presented for the jury as to whether Bower ever referred him. to the lawyers, and if so whether before or after such conversation.

If the defendant went to the lawyers at his own instance or at the instancé of Drewry, or for the purpose of getting advice, it is plainly evident that the conversation would not be admissible or binding upon the plaintiffs. Bower was not present nor any person representing the plaintiffs at the time, and nothing contained in this record shows that the attorneys were authorized to bind the plaintiffs by any information which they might impart. Whether or not Bowef referred the defendants to the lawyers is left uncertain under the testimony, and Crawford who gave it was an interested witness; so that upon this subject* as the conversation would be inadmissible unless Bower especially referred the defendants to them -for information, whether he so referred them and authorized thereby information to be imparted was clearly a question of fact for the jury. This is the most favorable view to which the defendants were entitled under the circumstances of this case. But we are of opinion from all that appeared that the attorneys had no authority to make any admissions or give any directions binding upon the plai-in tiffs. , While attorneys, .engaged in the- actual management of a cause may bind their clients by admissions, while so engaged or by statements and correspondence relating thereto, yet they have no authority under a general retainer to compromise an action or to bind á client by statements that he has-no cause of action, or that he has surrendered whatever rights he possessed. ■ It does not - appear in this case what the engagement of the attorneys was or just what authority had been given to them. The most that can be inferred is that of a general retainer to prosecute a claim against the defendants, and it would be a great stretch of authority to hold that under such circumstances they could advise the party against whose interest they were retained, or make statements upon which such person might act, and thereby create an estoppel against the client whose interests they were retained to protect. (Mandeville v. Reynolds, 68 N. Y. 528; Welsh v. Cochran, 63 id. 181; Wilson v. S. P. R. R. Co., 53 Cal. 735; Probate Judge v. Abbott, 50 Mich. 278.)

This testimony was material and the statement was controlling if it .was made by the plaintiffs or authorized by them. In effect it was a statement that plaintiffs by another transaction had vested absolute title to the cotton in Drewry by virtue of a contract subsequent to the first sale, out of which the indebtedness -here sought to be enforced arose and which was entirely independent thereof. It is manifest that, if such was the fact, the defendants would have the right to deal with Drewry in respect to the cotton as owner, and if he were such owner by virtue of the subsequent arrangement the authority to enforce payment of the check which was given upon the first sale would cease and no rights in favor of the plaintiffs could accrue' therein, consequently the testimony was of controlling importance, and was so treated by the court in the disposition of this case. The jury were authorized, however, to. find from the testimony that Bower did not sell the cotton to. Drewry and take in payment this due bill; that the execution and delivery of it constituted only a part of the transaction, and that no title to the cotton vested in Drewry under that arrangement and that he acquired no rights therein. This conclusion would result in a reversal of this judgment unless it became immaterial in view of other considerations.

The defendants upon the trial did not produce the notes which they set up in their respective counterclaims, unless the Alabama judgment established them. It,may be said that this testimony did establish that the notes once had an existence, but at the same time it conclusively established that they had ceased to exist as notes, had become merged in the judgment and could no longer be declared upon as such as valid counterclaims, or - otherwise. (Nicholl v. Mason, 21 Wend. 339; Candee v. Smith, 93 N. Y. 349.) The judgment, therefore, was not evidence to establish the counterclaims ; on the contrary, it destroyed them.

As the judgment, however, was. received, we come now to consider its effect. It is the contention of the defendants that the judgment was conclusive according t'o the finding thereof, so as to estop the parties respectively from again litigating the fact so tried and found, whether it be pleaded in bar or given in evidenceand such undoubtedly is the law, if the judgment was competent for any purpose within the issue presented by the defendants. It is the contention of the respondent that it was admissible under the general issue which is raised by the answer. It is undoubtedly the rule that under the general issue “ the defendant may controvert by evidence anything which the plaintiff is bound to prove in the first instance to make out his cause of action or anything that' he is permitted to prove for that purpose under his complaint.” (Milbank v. Jones, 141 N. Y. 340.) This evidence, however, did not controvert, disprove or tend to overthrow anything which the plaintiff was required to prove as constituting his cause of action. It, did not bear thereon. Its effect was to bar a right of recovery by matter entirely extrinsic to the cause of action as proved by the plaintiff. In other words, it said, admitting, the cause of action averred and proved, it is defeated by new matter and new conditions entirely independent of it. The rule to the extent claimed by the plaintiff is not now the law, if it ever was. By section 500 of the Code of Civil Procedure it is required that new matter constituting a defense or counterclaim must be pleaded, and without such plea it is not available. Section 149 of the old Code contained the same provision and was so construed (McKyring v. Bull, 16 N. Y. 297); and such is the construction of the present provision. (Linton v. U. F. Co., 124 N. Y. 533.) The purpose of compelling such a plea is perfectly plain. * The plaintiff is entitled to be. apprised of any new matter which tends to defeat his cause of action in order, if he have answer thereto, that he may be prepared to establish it. In the present case the'plaintiff became entitled to attack this judgment as obtained by fraud or that the court was without jurisdiction to render it, or to prove any other matter which might overthrow it, and for this reason the provision is salutary and should be. enforced.

The judgment, however, was not available for another reason, and it seems would not have been available for that reason under the general issue, if otherwise it might have been. The judgment itself Was not rendered until nearly five years after the commencment of. this action. In order, therefore, to have made it available as a defense, it became necessary for the defendant to apply for leave to set it up by way of supplemental pleading. (Code Civ. Proc. § 544; Boone Code Pl. § 40.)

It appears from the record that the defendants understood their rights and obligations in this respect, as they applied before the trial at Special Term to amend their pleading by setting up the judgment. Leave was granted upon payment of costs. The defendants never complied with the terms imposed, and no pleading, supplemental or amended, was ever served. In no view, therefore, and for no purpose was this judgment admissibleand inasmuch as the .defendants went to trial with full knowledge of all their rights and obligations in the premises, .they should not thereafter be permitted to avail themselves of a' supplemental plea, setting up this judgment.

It follows from these views that the judgment and order should be • reversed and a new trial granted, with costs to the appellants to abide the event.

Van Brunt, P. J., Patterson, Ingraham and Laughlin, JJ., concurred.

Judgment and order reversed and new trial granted, with costs to appellants to abide event.  