Case ID: ny-super-ct_15/html/0100-01.html
Source: Caselaw Access Project
Author: {"author": "By the Court. Duer, Ch. J.—We", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Levy v. Cavanagh, Receiver, etc.
    When the owner of goods delivers them to an auctioneer to be sold on his account, being, at the time, a clerk and book-keeper of the auctioneer, and the auctioneer, with the knowledge of such, owner, and without objection from him, de- ■ posits, from time to time, the proceeds of such sale, and the proceeds of sales for others, and all moneys he receives, to his general credit in bank, and draws, from time to time, against such deposits, checks to pay debts owing to his customers, and his general expenses, such owner will be deemed to have assented to that course, and he will become a general creditor of the auctioneer, having such rights as the other general creditors, and no greater.
    A receiver of the property of such auctioneer, duly appointed, in proceedings against him supplementary to execution, will, as such, be vested with the legal title to the moneys on deposit, and be entitled to payment of them by the bank, in preference to the creditors owning the goods, the proceeds of which have been so deposited.
    A check drawn by such auctioneer, in favor of such owner, on such bank, for the amount of the proceeds of his goods, after such appointment of the receiver has been perfected, and notice thereof given to the bank, and an assignment of an amount of such deposit equal to the amount of such check, will give such owner no right of action against the bank, nor any right to the moneys on deposit, they having been paid into court, to abide the result of a suit to determine the relative right of such owner," and of such receiver to them.
    When such owner, in an action against the receiver to enforce his claim to, and to recover such moneys, as part of the case made by his complaint, states the drawing of the check and the making of such assignment, and a demand of the ( moneys by virtue thereof, and proves such facts by such assignor on the trial, is the plaintiff in the judgment on which, and for whose benefit such receiver was appointed, admissible as a witness, in such action, for such receiver ?
    (Before Duek, Ch. J. and Woodruff, J.)
    Heard, October 6,
    and decided November 14,1857.
    This action comes before the Court, at General Term, on a verdict ordered to be taken in favor of the plaintiff, for the amount of his claim, subject to the opinion of the Court on a case to be made, and directed, at the trial, to be heard in the first instance at the General Term. It was tried in December, 1855, before Ch. J. Oakley, and a jury. The action was commenced against the - Union Bank, as defendant.
    The plaintiff seeks to recover the amount of a check, drawn by Edward Schenck, on the Union Bank, for the sum of $138, and dated January 23d, 1855. It was presented on that day to the bank for payment, which was refused. Schenck then executed a written assignment to the plaintiff of the check, and of a like sum standing to his credit on the books of the bank, reciting, that this amount was due for goods of the plaintiff, which Schenck had sold as auctioneer, and the proceeds of which he had deposited in such bank. The said check and assignment were both presented, and payment again demanded and refused. On the 18th of said January, the defendant, on proceedings supplementary tó execution against said Schenck, was duly appointed a receiver of all his property, and, on the 20th of said January, gave notice thereof to the Union Bank. On petition of the Union Bank, Cavanagh, as such receiver, was substituted as defendant, and answered the complaint, claiming the moneys on deposit, as such receiver. The complaint alleged the making and presentment of the check, the execution of the assignment, and presentation of that; a demand of payment on each occasion, and a refusal to pay it. On the trial, Edward Schenck was sworn, as a witness on- the part of the plaintiff. He was objected to as incompetent, on the ground that the action was brought for his immediate benefit, which objection was overruled, and the defendant excepted. He proved the check and assignment, and they were read in evidence. That, being a licensed auctioneer, he sold, during January, 1855, various articles for the plaintiff, the whole amount. being $138. That the check and assignment were given for this $138. That these moneys, and the other moneys which he received in the prosecution of his business, were deposited, promiscuously, to his general credit in the Union Bank. Such deposits, commencing on the 2d of December, 1854, and continued to a date subsequent to the deposit of the moneys received on the sales of the plaintiff’s goods, were twenty-seven in number, and amounted to $8,457.89. The smallest deposit made in January, 1855, was $109.40, and the next smallest was $183. The plaintiff frequently went to the bank with Schenck’s bank-book, and made the deposits. He was, at the time, in the employment of Schenck, as book-keeper. Schenck, from time to time, drew against such deposits, to pay his customers and his personal expenses.
    "When the plaintiff rested, the defendant moved for a dismissal of the complaint, on the grounds, that neither the check nor the as signment, nor both together, gave to the plaintiff a right to the money; and that the deposit of the moneys received for the plaintiff’s goods, being a general one, and the moneys being thereby mingled with other moneys, their identity was lost, and could not be traced so as to entitle the plaintiff to recover. The motion was overruled, and the defendant excepted.
    The defendant then proved his appointment as such receiver, by an order dated the 18th of January, 1855, and the service of a certified copy thereof on the Union Bank, on the 20th of January, 1855, with a notice, in writing, that it was such a copy, and demanding payment to him, as such receiver, of the moneys deposited by Schenck with the bank, to the amount due to the plaintiff in the action in which he was such receiver, being about $550, including interest and costs.
    Patrick Monaghan, such plaintiff, was then offered as a witness for the defendant, and was rejected, as being the party for whose immediate benefit this action was defended. The testimony being closed, the defendant renewed his motion to dismiss the complaint, which was denied, and he excepted. A verdict was then ordered for the plaintiff, as already stated. On a case showing these proceedings to have been had, the action now comes before the Court, at General Term, for its judgment.
    
      E. Pierrepont, for plaintiff. •
    
      F. Byrne, for defendant.
   By the Court. Duer, Ch. J.—We

are clearly of opinion, that, upon the evidence given on the trial, the plaintiff was not entitled to recover, and that when the parties rested, the complaint ought to have been dismissed, or the Judge should have instructed the jury to render their verdict for the defendant.

It may be admitted, that the moneys arising from the sale of the plaintiff’s goods, so long as they remained in the hands of Schenck, the auctioneer, and could be identified, were as much the property of the plaintiff as the goods of which they were the proceeds. But, if the plaintiff permitted Schenck to treat the moneys as his own, by blending and mixing them with his own funds, or those belonging to other persons, so that they could no longer be traced and identified, he thereby gave credit to Schenck for their amount, and from that time his claim against the latter was in no respect distinguishable from that of an ordinary creditor.

It became, in effect, a loan to Schenck of the sum received by him, payable on demand.

We think that the proof in this case was conclusive, to show that such were the facts. The plaintiff made no demand of the proceeds of his goods when they were received. He was in the employ of Schenck, not merely as his clerk, but as his book-keeper, and sometimes went with the bank-book to make deposits on his account. He, therefore, knew that it was the custom of Schenck to deposit in his own name, and to his own credit, all the moneys that he received from sales, including his own commissions, and to draw upon this common fund, not only for payments to his customers, but for his own personal expenses. With this knowledge he must be deemed to have assented, by his silence, to the deposit that was made of his own funds; and there is no pretence for saying, that the deposit so made created any privity, in law or y in equity, between him and the bank. Its only effect was to make Schenck the creditor of the bank, and himself the creditor of Schenck.

When an auctioneer sells the goods of a principal, under an immediate duty, to pay over the proceeds, if, without the knowledge or assent of his principal, he deposits those proceeds in a bank to his own credit, we do not doubt that a court of equity would interfere and restrain the fraudulent agent from applying the funds to his own use, and would even hold, that the principal was entitled to receive them in preference to other creditors. But where there is no allegation nor proof of fraud, and, a fortiori, when the proceeds of a sale are so deposited with the knowledge and assent of the principal, there is no precedent nor principle that could justify such an interference of a court of equity on his behalf. •

We have, therefore, no difficulty whatever in holding, in the present case, that the whole fund, including the deposit of the moneys of the plaintiff standing to the credit of Schenck on the books of the Union Bank, on the 11th day of January, constituted a debt due to him from the bank, and that the whole title to this debt, both in law and equity, was transferred to, and became vested in the defendant on that day, by force of his appointment as receiver. Notice of his appointment was given to the bank on the 20th day of January; and consequently, if, after that day, the bank had paid to the plaintiff, as holder of the check, or as assignee of Schenck, the sum which he demanded, the payment would have been made, in its own wrong, of money belonging to the defendant and the creditor whom he represents.

We add a few words, to guard against a conclusion, that might otherwise possibly be drawn from our decision. We are not to be understood as saying, that when an auctioneer deposits in a bank, in his own name, the proceeds of goods entrusted to him for sale, with the mere intent, and as the mode of providing for their, safe keeping until their payment shall be demanded, a court of equity would not protect the entire fund for the benefit of the owners of the goods, not only against its misapplication by their agent, but against the claims of other creditors. But where, without any fraudulent intent, or violation of instructions, the moneys are not only placed to the credit of the agent in his general account, but that account embraces as well the moneys used by him for his own personal expenses, as the proceeds of goods sold; and all the moneys received by him, from whatever source, are mixed and blended together in their mode of deposit. The sole relation in which he then stands is, that of creditor of the bank, and of debtor to the owners of the goods. Nor have those owners any remedy against him or the funds deposited, except such as may belong to them in common with all other creditors, or may be acquired by their superior diligence.

It remains, only, to notice the exceptions that were taken to the admission of Schenck as a witness, and the rejection of Monaghan, the judgment creditor, upon whose application the defendant was appointed receiver. The first exception is so plainly untenable, that it requires no observations; and we think that the second, for, the reasons that I shall briefly state, was also groundless.

The defendant asserts his title, as receiver, for the sole benefit of Monaghan. His relation to Monaghan is that of an agent, acting under an immediate duty to pay over to him, as principal, the moneys which, as receiver, he is authorized to collect. It is true, he acts under the authority, and subject to the control of the Court or Judge by whom he was appointed; but the right of Monaghan, as the judgment creditor, upon whose application he was appointed to receive the moneys he may collect, is indisputable. Monaghan was, therefore, offered as a witness to prevent the recovery of money to which, if the legal title is adjudged to belong to the defendant, he, as a sole cestui que trust, will be immediately entitled. He was, therefore, properly rejected, according to the decisions in this Court, in Catlin v. Hansen, (1 Duer Rep. 329,) and St. John v. The American Mutual Life Insurance co., (2 Duer, 419).

It is, perhaps, doubtful, from the form of the case, as before us, whether we have authority, now, to render judgment for the defendant, dismissing the complaint. We think the safest course will be, to set aside the verdict, and order a new trial; but if, upon a second trial, no additional and material facts shall be proved on the part of the plaintiff, the defendant will be entitled to judgment.

New trial ordered; costs to abide the event. 
      
       Is it clear, that Monaghan was rightly excluded as a witness, even conceding that the action was defended for his immediate benefit. If Schenck, a witness for the plaintiff, is the assignor of a thing in action, and that thing in action was the subject of the action, then Monaghan could have been examined in his own behalf, unless he is to be excluded merely because he is not, nominally, a party to the action. If an actual party to the action, and the only person interested as a-defendant, he could have been examined, simply, because the plaintiff had examined the assignor of a thing in action, in a suit to recover the thing so assigned, or its equivalent. (Code, § 399.) But, by § 396, Monaghan’s right to be examined was as perfectas if he had been a party to the action. The plaintiff sought to recover, partly, by force of the check’s operating as an assignment, and by force of the assignment of $138 of the moneys on deposit, actually made. He gave both in evidence, and proved them, by Schenck, his assignor. Unless it can be said, that he rested his right to recover, solely or substantially, on the ground, that the moneys deposited, to the amount of $138, were his property, because they were the proceeds of his goods, and no claim was made, based on the fact of the assignment, then it would seem that his examination was that of an assignor of a thing in action, and that such examination gave the right to Monaghan to be examined, in his own behalf, to the same matters to which Schenck had been examined. It is proper to observe, however, that there is nothing, in the printed points, furnished to the Court on the appeal, which indicates that any of the views here presented were suggested to the Court on the argument.