#### Egbert Denton, Appl’t, *v.*Charles A. Merrill, Resp’t.

*(Supreme Court, General Term, Fifth Department,*

*Filed January,*1887.)

1. ASSIGNMENT FOB BENEFIT OF CBEDITOBS — PARTNERSHIP CANNOT PBEFEB CLAIMS AGAINST INDIVIDUAL PABTNEE — TbUST FUNDS.

An assignment for the benefit of creditors contained a preference expressed as follows: “To pay to the Board of Supervisors of Chautauqua county, Ñ. Y., all'sums and indebtedness due Chautauqua county by the said firm of P. & S., and to pay the said Board of Supervisors all indebtedness due for money had of O. S., treasurer of Chautauqua county, and to pay to the said Board of Supervisors of Chautauqua county all debts and liabilities which the firm of P. & S. owe or have incurred to O. S., treasurer of Chautauqua county, and to pay said Board of Supervisors all moneys had by them and used by them, which moneys belonged to Chautauqua county.” And it appeared that S., of the firm of P. & S., who had acted as deputy.for his father, O. S., who was treasurer of Chautauqua county, had from the time of the formation of the firm up to near the time of the assignment used money which came to the county treasurer, as such to pay the debts and bills payable of the firm. *Held,*that said moneys were trust funds, and that S. having diverted them from their proper use, is liable to account for them to the county in a proper action for that purpose. That the fact of his liability alone did not permit the firm to give to the claim a preference to the prejudice of its creditors. That if he only was liable the assignment was void.

2. Same — When the pbesumption is that money was lent to firm— When not — When contbact on the pabt of the fibm to repay ARISES.

When a member of a firm borrows money and uses it in the business of the partnership, or when he appropriates the money of another for that purpose, the presumption goes in behalf of the lender, or owner of the fund so used, of the liability of the firm to him. But when he borrows the money so used upon his individual credit, of a person knowing the existence of the firm, and when he lends to his firm trust moneys, held by him without any notice to his co-partner that it is such, no contract on the part of the firm arises to pay the lender of the money or the beneficiary owner of the trust fund.

3. Same — When schedules may be used to show intent.

The act of making an assignment is that of the assignor, and its validity depends upon the intent with which it is done, and as of the time it is made. The original schedules when made by him reflects upon the act of making the assignment and may be treated as representing the purpose of its provisions and giving to them a more specific application. But when the schedules are made by the assignee they cannot be treated as so doing.

4. Trust funds — May be followed in equity.

In equity funds and property impressed with a trust may be pursued until they reach a holder in good faith. This rule is less effectual as applied to money than in its application to property other than money. The mere fact of depositing the money in a bank does not relieve it from its character of trust funds so as to defeat the right to follow and recover it as such.

Appeal from order of Chautauqua special term- denying the plaintiff’s motion for a new trial.

The action is brought to recover for the alleged conversion of a quantity of personal property, consisting- of a store of goods in Mayville, N. Y., to which the plaintiff claims title by virtue of an assignment for the benefit of creditors, by Marshall Porter and Edwin T. Sperry, constituting the firm of Porter and Sperry, made by them to him, July 23d, 1884.

*388The defendant, as sheriff of that county, after such assignment, levied upon and sold the goods by virtue of several executions, issued upon judgment recovered against the firm. The trial court directed a verdict for the defendant. And from the order denying a new trial this appeal is taken.

*C. D.*Murray, for appl’t; *George*Crorham, for resp’t.

Bradley, J.

The ground upon which the defense rests is, that the assignment made by Porter and Sperry, for the benefit of their creditors to the plaintiff, was fraudulent and void as against the creditors of the assignors, on account of the preference , expressed in it as follows: — “ To pay to the Board of Supervisors of Chautauqua County, N. Y., all sums and indebtedness due Chautauqua county, by the said firm of Porter and Sperry, and to pay the said Board of Supervisors all indebtedness due for moneys had of Orrin Sperry, treasurer of Chautaugua county, and to pay to the said Board of Supervisors of Chautauqua county, all debts and liabilities which the firm of Porter and Sperry owe or have incurred to Orrin Sperry, treasurer of Chautauqua county, and to pay said Board of Supervisors all moneys had by them and used by them, which moneys belonged to Chautauqua county.”

And for the alleged reason that there was then no existing indebtedness or liability of the firm of Porter and Sperry, to the county of Chautauqua, or the Board of Supervisors of that county.

In April, 1880, the firm of Porter and Sperry was organized. It succeeded that of Miller and Porter, and purchased the stock of goods on hand of that firm, amounting to $5,393.87.

Porter retained in the new firm his interest in the property of the preceding one, which was one-half. This was all the capital he had, and he owed some debts. Sperry had no capital prior to going into the firm, and borrowed the money to purchase the interest he took in it. His father, Orrin Sperry, for several years had been, and then was treasurer of the county of Chautauqua. And the son, Edwin T. Sperry, acting as his deputy or clerk, had the charge of the business of the treasurer. And on and after the formation of his firm, he had the office, and did the business of the treasurer in a room of the store building, occupied by the firm. Thereafter and up to near the time of the assignment, moneys which came to the county treasurer as such, were used to pay the debts and bills payable of the firm. This use of the money constitutes the claim in view, and claimed to be covered by the preference referred to, in the assignment of the firm of Porter and Sperry.

To avoid the inconvenience of requiring the treasurer to sign the checks to draw the money from the bank, the funds of the treasurer were there deposited from time to time, to the credit *389of E. T. Sperry, and by bis cbeclc were transferred to the credit of the firm, and drawn by it for its purposes. And sometimes the treasurer’s funds were placed in the bank directly to the credit of the firm. Usually when credit was in that manner transferred and furnished to the account of the firm in the bank, the member, E. T. Sperry, took credit for it on the books of the firm. So that in consequence of its use of such funds, he appears by the books to have become its creditor. The business of placing these funds to the credit of the firm was not all done by E. T. Sperry, personally. The firm had a confidential clerk and book-keeper, who also, in the absence of E. T. Sperry (which was a considerable portion of .the time), had the charge for him of the business of the treasurer.

This clerk, by authority derived from E. T. Sperry, took moneys from the treasurer’s funds and placed them to the credit of the firm in the bank. He had authority from him to draw checks in his name, and did so transfer money in the bank from the account of E. T. Sperry, to the credit of the firm. He also had authority to draw checks, drafts, and notes in the name of •the firm. And did so draw checks to pay its bills.

He also signed the firm name to a note of date, January 4, 1884, for $846.08, payable at thirty days to the order of E. T. Sperry, and one of date, March 4, Í884, for $304.59, payable at one day to his order. Also a note of date, January 22d, 1884, for $450, payable at thirty days to the order of Orrin Sperry. The evidence tends to prove that these three notes were drawn and signed by this clerk, for treasurer’s moneys by him placed in the bank, to the credit of the firm, and used for the purpose of its business ; and that those amounts were not placed to the credit of E. T. Sperry on the books. This clerk had substantially the charge of the book-keeping of the firm the last two years of its business.

The plaintiff, as assignee, caused the schedule to be made. And in the account of creditors represented by it, appears the Board of Supervisors of Chautauqua county, as a creditor for money had by the firm, for sums embracing those three notes, respectively stated, and also' for the sum of $10,461.21, in addition.

The question arises whether this appropriation of the funds which came to the custody of the county treasurer and the manner which it was done, created a liability of the firm to the county in any view which may be taken of it. The relation of county treasurers to their respective counties, and the consequences of their default are to some extent prescribed by the statute. Before he enters upon the duties of his office the treasurer is required to give a bond to the supervisors of the county, to be approved by the Board, etc. 1. R. S. 369, § 18, amended by L. 1874, ch. 502. He is under the supervision of the board *390of supervisors so far that they may require improvement of the security given by him when in their judgment it is deemed *expedient*for the safety of the fund in his charge. *Id.*

And he is required to render an account to them annually, and such other time they may direct. 1 R. S. 369, § 22. And all losses which may be sustained by his default in respect to moneys received by him of those collected through the means of taxation are chargeable on the county. *Id.*419, § 5. As to such money, the treasurer is practically the custodian for the county of it, charged with prescribed duties in reference to its disbursement, and his relation and duties have the nature of an agency. *Supervisors*v. *Otis.*62 N. Y., 88: *Newman*v. Supervisors, 45 N. Y., 676, 686. And the liability to third persons for moneys improperly levied and collected which go to the treasurer is that of the couny and not his. *Newman*v. *Supervisors, supra; Cary*v. *Curtis.*3t How. U. S., 236. They are therefore trust funds which the county in its corporate capacity may take such means through the aid of the courts as may be necessary for their preservation, and proper uses. The person to whom the custody of these funds of the county of Chautauqua which came to the treasurer was intrusted, has diverted some of them from their legitimate purposes to the use and business of the firm of which he was a member. And he is liable to account for them to, or in behalf of the county in a proper action for such purpose. But the fact of his liability alone, did not permit the firm to give to the claim a preference to the-prejudice of its creditors ; and to treat it as a liability of his only, the assignment will be deemed fraudulent and void as against the plaintiff. *Wilson v. Robertson,*21 N. Y., 587.

When a member of a firm borrows money and uses it in the business of the partnership, or when he appropriates the money of another for that purpose, the presumption goes in behalf of the lender, or owner of the fund so used, of liability of the firm to him. *Estate of Davis,*5 Wharton, 530, 34 Am. Dec. 574; *Brown*v. *Higginbotham,*5 Leigh, 583, 27 Am, Dec. 618; *Jaques*v. *Marquand,*6 Cow, 497; *Hutchinson*v. *Smith,*7 Paige, 26-33; *Ontario Bank v. Hennessey,*48 N. Y., 545.

But when he borrows the money so used upon his individual credit, of a person knowing the existence of the firm, and when he lends to his firm trust moneys held by him, without any notice to his co-partner that it is such, no undertaking or contract on the part of the firm arises to pay the lender of the money or the beneficial owner of the trust fund. This case presents a peculiar aspect in view of the question presented.

The members of the firm have united in an assignment giving preference to a claim arising out of the use of money by the firm in its business, and which was appropriated to such use in violation of law. Assuming that no action at law could have been *391maintained against the firm to recover the amount of money so diverted by Sperry, and used by tlie firm, the question may arise whether there are any equities in support of the claim. The form and apparent effect given to transactions which may interrupt proceedings in actions at law, do not necessarily always defeat the application of equitable considerations, and through them the means of relief. It is a rule of equitable cognizance that funds and property impressed with a trust may be pursued until they reach a holder in good faith. 2 Perry on Trusts, § 838. *In re*Le Blanc, 14 Hun, 8. *Sadler's*Appeal, 87 Penn. St., 154.

This rule is less effectual as applied to money, than in its application to property other than money, for reasons obvious in and essential to business transactions. *Ferris*v. *Van*Vechten, 73 N. Y., 113; *People*v. *M. & M. Bank,*78 *id.,*269. *Stephens*v. *Board of Education,*79 *id.,*183.

The evidence permits the inference that the partner, Sperry, had no funds of his own, and none other than those of the treasurer, to his credit in the bank, and consequently those so deposited by him were impressed with the trust, and he had no right to transfer any there from his account to that of the firm. And the same may be said of the moneys referred to deposited directly to its credit in the bank. *Pennell*v. *Deffell,*4 De. G. M. & G. 372. *Knatchbull*v. *Hallett,*L. R. 13 Ch. Div. 696.

And the mere fact of its deposit to the credit of the firm, did not relieve it from its character of trust funds so as to defeat the right to follow and recover it as such. It, or the most of it, was then drawn by one member or the clerk of the firm upon, its check, with knowledge of its character, in violation of the the trust with which it was impressed.

The question whether the firm was a recipient in good faith of the fund in this manner appropriated by it, is a question entitled to some consideration. The member, Sperry, so far as it appears, took nothing from the firm on account of this money so used, except credit on its books. This was an apparent, but not a substantial consideration. It was a mere representation bearing upon the state of the accounts to arise only upon an accounting which has not been had, between the members of the firm.

This money has goné into and contributed to produce its property on hand, and property the proceeds of which have been taken by the firm. And that such property and proceeds might not be charged on account of these funds is not entirely clear. *Ferris*v. *Van Vechten,*73 N. Y., 113.

We have thus far proceeded without reference to the inquiry whether the member, Porter, was chargeable with knowledge of the appropriation and use of these public funds in the business of the firm.

*392And on the assumption that he was not, we are not prepared to hold the firm liable for the moneys so used, which were placed to the credit of Sperry on its boohs, and express no opinion on that question as applied to the assignment, in view of the equitable considerations involved. The relation of the respective members of a firm to it is that of agency, and for the purposes of remedy against it, each member is chargeable *civiliter*with the act- of his co-partner in the partnership business, and with the knowledge and purpose with which the act is performed. And in this instance the confidential clerk in like manner represented the firm, when acting within the power with which he was invested by it. When this public money was placed to the credit of the firm it was impressed with the trust, and the account or credit produced by it, was subject to lien for its repayment. The partner Sperry, and the clerk of the firm knew this, and that the funds were appropriated in violation of law, and of the trust when they drew upon it the firm cheeks to pay its bills. By doing this the owner was deprived of the equitable remedy which there existed to reclaim the money from the bank. The intermediate act of transfer to the credit of the firm was attended with no consideration which denied to the owner such equitable right, but the defeat of it was consummated by the act of the firm in this drawing upon the account so produced. *Chester*v. Dickerson, 54 N. Y. 1*Bradner*v. *Strang.*89 *id.,*299. 306. However difficult it might be to sustain an action in behalf of the county against the firm upon that state of facts, the inquiry may very properly arise, and be entitled to consideration, whether, in view of the situation and all the circumstances before adverted to, there were not equities which legally justified the recognition by the firm of the claim, and went in support of the preference which the assignment sought to give it.

But without determining, or expressing any opinion on that proposition, we proceed to the consideration of the relation of the schedule to the assignment and its effect upon the provisions of the latter in view of the distinction which may be made of a portion of the claim from the rest of it. It will be observed that the assignment itself states no amount of the claim in question preferred by it, and that it alone may fairly be construed to cover any liability of the firm whatever the amount of it may be, on account of the appropriation and use by it of the funds of the county treasurer.

It appears that |450 of those funds were taken and used in the firm business, and a note for that made in its name, payable to the order of Orrin Sperry, who was such treasurer. The evidence tends to prove that this money was taken from the treasurer’s funds by the clerk of the firm, and the note so drawn and made by him in its name, without the knowledge of the *393treasurer of tbis act, that tbe note was not delivered to him, but was placed in tbe desk as tbe representative asset of sucb amount, and that tbe sum was not placed to the credit of tbe partner, Sperry, in tbe company books. Tbe conclusion, therefore, was not required that tbis was a loan by that partner to tbe firm, but rather that it was an appropriation of so much of tbe county fund by tbe firm to its business, by the consent of one member, and through the act of tbe clerk.

The jury were, we think, permitted to treat this diversion appropriation, and use, as the act of tbe firm.

Tbe schedule of creditors, etc., as made after tbe assignment, embraces the amount of this noté, and other sums as those to which the Board of Supervisors are entitled to receive upon the liability of the assignors, amounting together to upwards of 112,000. The evidence tends to prove that tbe schedules were made by, and under the direction of the assignee, pursuant to the requirement of the statute (L. 1877, ch. 466, § 3, subd. 5), and not by the assignors. This schedule may have been competent as evidence but it was not necessarily a part of the assignment in such sense as to make the language of the provision of the preference in question express tbe amount of tbe sums mentioned in the schedule as the amount necessarily preferred by it, as tbe claim for county funds diverted and used. And therefore the validity of tbe assignment does not necessarily depend upon the existence of the amount of the firm liability mentioned in sucb schedule. . The act of making an assignment is that of the assignors, and its validity depends upon the intent with which it is done, and as of the time it is made.

The required schedules when made by them reflect upon the act of making the assignment, and may be treated as representing tbe purpose of its provisions and giving to them a more specific application. *Talcott*v. Ness, 31 Hun, 282, 284; *Schultz*v. Hoagland, 85 N. Y., 464, 468, 469.

It is difficult to see how the act of an assignee subsequent to the assignment, in causing to be made a schedule “ in so far as he can ” can ordinarily be treated as characterizing the intent of the assignor in making it: at all events it cannot as matter of law be said that the assignee in such case has expressed in the schedule the purpose of the assignor when he executed the assignment and thus give invalidity to the latter. In *Terry*v. Butler, 43 Barb., 395, the schedule was made by the assignor, and was treated as part of his act in making the assignment and characterized the latter. That fact distinguishes that case from the one at bar. If these views are correct the assignment may not be found fraudulentas against the creditors of the firm if the firm was liable for any amount within the terms of the preference as expressed in the assignment. And that question should have been submitted to the jury. The new trial is *394granted upon tbis ground. While there are circumstances that might with some force be urged as bearing upon the question whether the partner had reason to, and did believe, and understand that the treasurer's funds were being taken, and used in the business of the firm during, or some part of, three and a half years ; when they were so appropriated in about forty instances ; we do not consider that question, or express any opinion upon it, as it is not deemed necessary for the purposes of another trial, when the facts maybe more or less variedby the evidence, and permit, and exclude inferences which are not supported by the evidence as it now appears in the record. The question and amount of the claim covered by this preference provision of the assignment is not for reasons before given necessarily involved in this review. If that instrument is sustained as valid, the amount which comes within the preference in behalf of the county, may arise upon its execution, when the creditors can be heard in such manner as they may be advised by way of support of their respective claims, and in challenging the amounts of those of other named creditors. And them considerations other than those determined on this review may arise.

The order should be reversed, and hew trial granted; costs to abide the event.

Haig-ht and Angle, JJ., concur.