Case ID: ny-super-ct_47/html/0229-01.html
Source: Caselaw Access Project
Author: {"author": "By the Court.—Sedgwick, Ch. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

FREDERIC WRIGHT, et al., Plaintiffs, v. STEPHEN CABOT, et al., Defendants.
    i. undisclosed principal.
    1. Rights op, against third persons.
    (a) Is entitled to recover from a broJcer who, upon the employment of his factor, has sold his goods, such proceeds of the sale as the broker, at the time of being notified of the principal’s' ownership still retains in his hands, subject to such equities a# existed between the factor and broker.
    Hall v. Lauderdale, commented on and distinguished.
    1. Equities between factor and broker.
    The broker is entitled to charge against the proceeds, the brokerage on, and expenses of the sale of the goods, the sale whereof produced the proceeds.
    But not entitled to brokerage and expenses on other property, where no credit in respect thereof was induced by the goods in question.
    II. Supplementary proceedings.
    1. THIRD PARTY ORDER.
    
      (a) Responsibility in paying under.
    
    Where the third party on his examination admits an indebtedness to the judgment debtor and fails to disclose that other persons claim the amount of such indebtedness, he at the time blowing of such claim, he will not be protected, by the fact of payment under an order made on such examination, from a recovery against him by such other persons.
    1. Attachment, levy under, but no action taken.
    
      As affording protection to payment under supplementary
    proceedings.
    
      (a) The fact that an attachment had been levied on the money as the property of the judgment debtor, and the third party gave a certificate pursuant thereto, does not, judgment having been recovered and execution issued thereon and returned unsatisfied, tend to protect the third party in a payment under a third party order made in supplementary proceedings based on the judgment and return of execution thereon unsatisfied.
    Before Sedgwick, Ch. J., and Tbit ax, J.
    
      Decided April 4, 1881.
    Exceptions ordered to be heard in first instance, at general term, after direction of verdict for plaintiff.
    The plaintiffs consigned property, viz.: 339 bales Esparto grass, to their factors, who were a firm called E. & C. Stokes, to sell. E. & G. Stokes employed, in their own name, the defendants as brokers, to sell the property. Before the sale, the defendants were informed that the property was consigned by correspondents of E. & C. Stokes, the latter informing the defendants that their correspondents “worked with them (E. & C. Stokes) on joint account.” The names of the plaintiffs as owners were not disclosed. Before February, 1878, the defendants had sold the property, and had received the proceeds in the sum of $1,472.40. The plaintiffs’ factors, E. & C. Stokes, having failed in business, an action was begun against them in the city of ¡New York, and they being residents of Philadelphia, an attachment against their property was issued and was served about February 11, 1878, on the present defendants. They signed a certificate that they were indebted to E. & C. Stokes in the sum of $628.36. On April 18, 1878, the defendants received a letter, signed by Mr. Scattergood, as attorney for the plaintiffs, which was as follows : “I have been requested to act for F. Wright, Newson & Co., of Liverpool, as their attorney, in the matter of certain merchandise, consigned by them to E. & C. Stokes of this city. I am informed that you are cognizant of the matter of 319 bales of Esparto, received in N. Y., Ex. S. S. City of Chester. Will you kindly advise me of the circumstances of this transaction, with full particulars of its present status ?”
    To this defendants answered: “We have never known F. Wright, Newson & Co. as being in any way connected with or interested in any merchandise sold by us for E. & C. Stokes. In fact, we had no knowledge of such a firm in any way. The name is entirely new to us. We remain, &c.”
    The plaintiff in the action against E. & C. Stokes obtained judgment, but no proceedings were taken to satisfy it, under the attachment..
    On the trial, it was admitted, that in the summer of 1878, and before the money in question was paid over, as hereafter stated, the defendants had received notice that the plaintiffs claimed the proceeds of these goods.
    Execution having been issued on the judgment, in proceedings supplementary to it, one of the defendants was examined and testified, “My firm holds to the credit and for the account of the defendants in this action, under the firm name of E. & C. Stokes, the sum of $628.36 over and above all our charges against them.”
    Thereupon an order was made, that the defendants pay over to the plaintiffs in the judgment,' the sum of $628.36, to be applied towards the satisfaction of the judgment.
    On the trial was produced, on plaintiffs’ case, an account rendered by defendants, in which it appeared that the goods had been sold for $1,472.40. Against this was charged for brokerage on this sale, and for expenses connected with the goods, viz.: carting, mending, weighing and storing, $274.84. There was also .charged for brokerage on sale of other goods and expenses connected with such other goods, $569.20. The account was shown to be correct ; but no evidence was given as to the circumstances under which the obligation in respect of the other goods arose.
    On the whole case, the judge directed a verdict for the proceeds of the sale, and entered and directed the exceptions to be heard, before judgment 'in the first instance at general term.
    
      George H. Fletcher, attorney, and of counsel, for plaintiffs, urged:
    I. The order under color of which the payment was made affords no protection to defendants. (a) It was obtained by irregular means. No examination was had by, or sworn to before, the justice as a matter- of facvt. It was sworn to before a notary public at the office of defendants. The form of the affidavit was such, as to mislead the court. It reads : “ His examination being taken and sworn to, by stipulation, before the undersigned notary public, and being examined by Coudert Brothers, attorneys for the plaintiffs, testified as follows.” By stipulation of whom? “His examination being taken,” imports regularity. The very opening of the pretended examination is an implied falsehood. “Stephen Cabot appearing pursuant to the order of. his examination as a third party,” are words which must have misled the judge signing the order of payment. Where did he appear pursuant to the order for examination ? Was the order made returnable at defendants’ office ? This was where the affidavit was made. Before justifying under the order, the proceedings culminating in it must have been established by defendants to have been regular; they fail to do this; they simply prove an order of payment; they fail to sustain this burden and the court, at the trial, was therefore correct in disregarding the order for payment and directing a verdict for plaintiffs. (5) The order was fraudulent in its intent. Its purpose was to deprive plaintiffs of the money which was justly theirs. The ex parte affidavit of Stephen Cabot was drawn and sworn to for the plain purpose of misleading the court. When he said “ my firm holds to the credit and for the account of the defendants in this action, under the firm name of E. & C. Stokes, the sum of $628.36, over and above all our charges and claims against them,” he knew he was telling but half the story, and that he was fraudulently conceal ing facts which the court should know. He was bound, to know, if he did not actually comprehend that the law was such that if he stated that Messrs. F. Wright,, ETewson & Co. of Liverpool^ England, claimed to be entitled to these same moneys, that llalli Brothers would not succeed in their summary attempt to get possession of them. The order was made the same as if bo such concern as the plaintiffs existed, or claimed, the money. Defendant, Cabot, knew that they did. exist and did claim the money, for in the next "breath he swears he had already received the notice that F. Wright, Newson & Co. claimed the money. This was a fraudulent concealment from the court of facts, which, if they had been divulged, would have rendered the present defense of payment to Ralli Brothers under this order impossible. The court never would have thus summarily disposed of F. Wright, Newson & Co.’s rights (Rodman v. Henry, 17 N. Y. 482; Sherwood v. Railroad Co., 12 How. 136; Grassmuck v. Richards, 2 Abb. N. C. 359 ; Manice v. Smith, 5 N. Y. Weekly Dig, 255). These cases plainly establish the rule that whenever any third person claims an interest in property sought to be summarily transferred in supplementary proceedings, no order for the delivery can be made therein. Conflicting claims cannot be tried in these proceedings. Either a suit must be brought to settle the claims, or a receiver must be appointed to superintend the carrying into effect of such an order to see that the property is indisputably that of the judgment debtor (Edmonston v. McLoud, 16 N. Y. 544). Neither proceeding was taken in this instance. If either had been taken, plaintiffs would not have been driven to this suit. Ho where is it declared that the court has the power or will take property of outside and unrepresented parties to pay the debts of judgment debtors. This power and discretion is limited to tak-' ing property of judgment debtors. Whosoever, therefore, misleads the court into believing that the property sought to be applied is the property of the judgment debtor, when it is not actually so, commits a fraud, either actual or constructive. Whether this is done by overt perjury or by concealment of material facts, makes no difference. In either case he should suffer the penalty of making the damage good. A third party, notified that his rights oí property are being attacked, is so far a necessary and proper party to the absolute and final conclusion of rights to the property that he is held to be entitled to appear and litigate the questions involved, by counsel employed by himself (Corning v. Tooker, 5 How. 19). He therefore, standing in the position of a party to the proceedings, cannot be bound by any order or determination therein, made without notice to him. As if to clinch the question of fraud, defendants were constrained to admit on the trial that full notice had been given to them long before the money was paid over to E-alli Brothers. This admission brands their acts as fraudulent. Ho benefit should spring to them from such conduct, (c) The fact that no notice was given to plaintiffs of the application for the order to pay over the sum of $628.36, renders the order no defense to the action of the plaintiffs to recover this sum, because otherwise' it, in effect, would deprive the plaintiffs of their property without due process of law. This is entirely outside the questions of fraud heretofore discussed. The plaintiffs were ’ entitled to their day in court before being deprived of their property. This the Constitution guarantees—an infraction of it is a breach of the highest law of the land. Courts have no right, by any rule of practice, to infringe it. They never permit any such rule to exist.
    II. Hothing was done under the attachment in consequence of these proceedings and the notices to defendants. Judgment was subsequently recorded, execution was issued, yet the money was not collected under the execution, as having been previously levied upon under the attachment. But on September 21, 1878, eight months afterward, in the surreptitious fraudulent proceedings already described, the money was paid over to Messrs. llalli Brothers, and this payment is now invoked as a defense to the claim of plaintiffs for the money. Could anything be more transparent % With full knowledge of all the facts and the claims of all the parties, defendants did an act which they must have known would only mulct them in damages. They took it upon themselves to decide at the time, and reiterate on the trial, that this money was the property of E. & C. Stokes.
    III. Although an attachment be regularly levied, if prior thereto the defendant has assigned and transferred his interest to another, the attachment cannot reach it. Although the person having possession of the property about the time of the levy be ignorant of. the assignment, and if prior to any payment by him tc> the sheriff he has notice of the assignment, the attachment proceedings are no defense to him in an action brought by the assignee against him (Greentree v. Rosenstock, 61 N. Y. 593). Again, it is held that a payment of money under an order in aid of execution will be protected as against an assignment of property to a third person, unless he has received notice of the assignment (Gibson v. Haggerty, 37 N. Y 557). This rule of notice changes the whole matter, for it is broadly held that in the absence of notice of assignment of claim against him, a party is entitled to deal with the assignor as though no assignment had been made (Senear v. Woods, 7 N. Y. Weekly Dig. 341).
    
      Ooudert Brothers, attorneys, and F. R. Ooudert, of counsel, for defendants,
    after making, among others, the point that certain evidence tending to establish that the Messrs. Stokes had no proprietary interest in the goods was erroneously admitted, and that it was under the evidence, for the jury to say whose the goods were, or who were the consignors, and the point that the rights and responsibilities of the parties had, on the' 4th of February, before the defendants had any notice or knowledge that any one other than the Messrs. Stokes were the owners of the goods or claimed any interest therein, become fixed by the levy of an attachment issued against the Stokes, and the giving by defendant to the sheriff of a certificate in pursuance thereof, and that they notified their principals, the Stokes, of the attachment, which was all they were bound to, citing Blevin v. H. R. R. R. Co., 36 N. Y. 403, urged:—I. Admitting, for the sake of the argument, that the Messrs. Stokes had no proprietary interest in the goods, under the circumstances of the case, the defendants, as sub-agents, “ are clothed with precisely the same rights and incur precisely the same obligations, and are bound to the same duties, in regard to their immediate employers (the Messrs. Stokes), as if they were the sole and real principals” (Story on Agency, § 386). And they had the right to retain, out of the proceeds of the goods, the amount of the balance of account due them from Stokes (Story on Agency, § 390; Mitchell v. Bristol, 10 Wend. 493, 495). Even conceding that the plaintiffs were the absolute owners of the goods, and the Messrs. Stokes simply their agent, the former, having been unknown to the defendants, and they having dealt with the Messrs. Stokes supposing them to be the principals, the plaintiffs will not be allowed to intercept the rights of the defendants in regard to the Messrs. Stokes, but are chargeable with all the equities in the same way as if the Messrs. Stokes were the sole principals; and the defendants are entitled to the same rights of set-off, &c., as if they were the sole principals (Story on Agency. § 420 ; and see Taintor v. Prendergast, 3 Hill, 72). That the defendants had so appropriated the money, to the extent of E. & C. Stokes’ indebtedness, as early as the 4th of February, is evidenced by the fact that on that day they gave the sheriff, who served the attachment, a certificate that they held.$628.36 belonging to the Messrs. Stokes. And this was before the letter stating that they were consigned goods. The Messrs. Stokes were then in embarrassed circumstances—within eighteen days of open bankruptcy— and this claim, that the goods were consigned, instead of on joint account, as they had previously stated, was doubtless suggested by their financial situation.
    II. Even were the goods “consigned goods,” the case would come within the rule, that an agent receiving money for his principal, in pursuance of a valid authority, without fraud, duress or mistake, is not liable to an action by a third person, who is ultimately entitled to the money, for neglecting to pay the same upon request, although the agent has not paid it over to his principal (Colvin v. Holbrook, 2 N. Y. 126; Hall v. Lauderdale, 46 Id. 70, 76).
    III. E. & C. Stokes never informed the defendants that the plaintiffs had any interest in the goods, and, so far as appears, never mentioned their names to them ; and this is a remarkable circumstance. Defendants’ only information of the plaintiffs’ claim was received from Scattergood, long after the proceeds had been applied as the funds of the Messrs. Stokes ; and they were not bound to recognize Scattergood, or the plaintiffs, without notice of their interest from Stokes. In the absence of notice from the Messrs. Stokes—the only parties who, under the circumstances,' could charge them with notice—the defendants were not bound to call the attention of the court to the claims of the plaintiffs. But, had they done so, it is scarcely conceivable that the court, when informed that the Messrs. Stokes had never mentioned the plaintiffs’ names to the defendants, and that, although duly notified of the attachment eight months before, neither the plaintiffs nor the Messrs. Stokes had taken any proceedings to prevent payment under it, would have refused the order in aid of execution, or even delayed issuing in. And the payment to Ralli Brothers, under that order, is, quoad hoc, a complete bar to this action (Holmes v. Remsen, 4 Johns. Ch. 460; Holmes v. Remsen, 20 Johns. 229; Bliven v. H. R. R. R. Co., 35 Barb. 188 ; affirmed by court of appeals, 36 N. Y. 403 ; Donovan v. Hunt, 7 Abb. Pr. 29 ; Cook v. Holt, 48 N. Y. 275 ; and see Gibson v. Haggerty, 37 Id. 555).
    IV. It was urged below that the defendants should have brought interpleader against Ralli Brothers and the plaintiffs or the Messrs. Stokes ; but they had no standing in court to do so (U. S. Trust Co. v. Wiley, 41 Barb. 479).
    V. Assuming, for the moment, that the plaintiffs were the real and sole owners of the goods, the case is plainly within the rule that, “where the true owner of property holds out another, or allows him to appear as the owner of, or as having full power of disposition over the property, and innocent third parties are thus led into dealing with such apparent owner, they will be protected. Their, rights in such cases do not depend upon the actual title or authority of the party with whom they have directly dealt, but they are derived from the act of the real owner, which precludes him from disputing, as against them, the existence of the title or power which he caused or allowed to appear to be vested in the party” with whom such third party has dealt (Bigelow on Estoppel, 468; McNeil v. Tenth National Bank, 46 N. Y. 325, 329), and, therefore, the plaintiffs never had any right to these proceeds, as against the defendants.
    VI. But, even should we concede that they once had, they are estopped, by their own laches, from asserting such right.
    VII. The case of Greentree v. Rosenstock (2 J. & S. 505; affirmed by the commission of appeals, 61 N. Y. 583), cited and relied upon by the plaintiffs below, does not apply.
    • VIII. But in no possible event could the plaintiffs recover the full amount of the proceeds of the goods. The defendants were certainly entitled to deduct the amount of their commission's and the expenses paid by them ; and it is difficult to understand upon what possible theory of the case this was denied below. This, together with the errors commented on under our first two points, calls for a new trial, in case the court should not feel justified in reversing the decision of the learned trial justice in foto.
    
   By the Court.—Sedgwick, Ch. J.

The plaintiffs, as principals of their agents and factors, E. & C. Stokes, had a right to recover the proceeds of the sale of their goods in the hands of the defendants, who made the sale as brokers of E. & C. Stokes, subject to such equities as existed between the factors and the brokers. ■ The learned counsel for the defendants made on .the argument a suggestion to the contrary, based upon the case of Hall v. Lauderdale (46 N. Y. 70). The suggestion, however, omitted to notice that in the ■case cited the defendant was not liable to any one who occupied the position of plaintiffs’ agent.

This right to recover did not exist, if the defendants, before notice that plaintiffs owned the goods, had disposed of the proceeds, in a manner that was justified by the relations between the defendants and plaintiffs’ factor.

Before the defendants had paid over the proceeds, they received notice that the plaintiffs owned the goods, and that they were the principals of their agent, the factor. From that time, the plaintiffs proceeded to deal with the proceeds at their own risk.

In this case the notice was sufficient. Upon receiving it the defendants did not dispute its correctness or ask any proof of its declarations. They were contented to say that they had not before heard the names of the plaintiffs in connection with the transaction. In the nature of the case and from the letters of the fac_ tors to them, they must have known that the factors had principals, although at first undisclosed. There was, too, a general admission in the case, that before ■defendants had paid over the proceeds, they had received notice of plaintiffs’ claim.

The service of the order of attachment does not avail the defendants. If the money had been paid over, under the attachment, it would have been necessary to examine if the payment were justified ; but in fact, the defendants did not act under the stress of the attachment proceedings, the money being paid under the order in the proceedings supplementary to execution. That order was based upon the position that the defendants voluntarily assumed that the debt they owed was to E. & S. Stokes, the defendant in the action. After the notice, they were bound to know that the debt was due to the present plaintiffs. They chose to act as if their obligation was only to the party who had given them the order to sell, and not at all to that party’s principal. They should not have admitted their indebtedness to E. & 0. Stokes, but ' should have testified according to the fact that they had received notice of the principal’s rights. That would have taken the case out of section 297 of the Code of Procedure. By that section, it must appear that the property to be applied to the satisfaction of the judgment, is the property of the judgment debtor. It would have appeared that there was doubt as to the ownership of the property, at least, and the order would not have been made. There being no notice to plaintiffs, the court would not have adjudicated as to their rights in their absence (Barnard v. Kobbe, 54 N. Y. 516; citing Stewart v. Foster, 1 Hilt. 505; Rodman v. Henry, 17 N. Y. 482).

I am, therefore, of opinion, that the plaintiff is entitled to recover from the defendants the amount of the proceeds of the three hundred and twenty-nine bales, less such amount as the defendants showed was chargeable to those proceeds. The proof on the trial sufficiently showed that the brokerage and expenses of sale, of this particular lot, in the amount of $274.84, were proper charges, and that amount, with interest, should be deducted from the verdict. There was no evidence that the charges in the account, in respect of other property, should be borne by the proceeds in question. It did not appear that the goods in question had induced any credit in respect of the other charges.

The exceptions should be overruled, and judgment on the verdict, reduced in amount, as has been indicated, should be entered, without costs of this motion to either side.

Truax, J., concurred.