Case Name: KESSLER et al. v. HERKLOTZ et al.
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1906-11-23
Citations: 101 N.Y.S. 418
Docket Number: 
Parties: KESSLER et al. v. HERKLOTZ et al.
Judges: 
Reporter: West's New York Supplement
Volume: 101
Pages: 418–428

Head Matter:
KESSLER et al. v. HERKLOTZ et al.
(Supreme Court, Appellate Division, First Department,
November 23, 1906.)
Payments—Recovery—Mistake—Evidence.
G. & Co. acted, as defendants’ Bremen agents to obtain speculative accounts from customers in Bremen, to be carried out through defendants in New York. As a matter of bookkeeping, all the transactions carried out for G. & Co.’s Bremen customers by defendants were charged to G. & Co. L. & Son, who were Bremen customers of G. & Co., being indebted to defendants through the latter for margins, at the request of G. & Co. cabled a request to plaintiffs to pay defendants $35,000 on account of G. & Co. The payment was made, and plaintiffs immediately drew on L. & Son through plaintiffs’ Bremen correspondent for the amount of the advancement. L. & Son having failed in the meantime, plaintiffs cabled G. & Co. that the payment had been made for their account, and on their denying the same, and claiming that the payment was for L. & Son, plaintiffs sought to recover the money from defendants. Held, that the cablegram directing the payment was ambiguous, and that plaintiffs were entitled to recover the money as money paid under a mistake of fact.
[Ed. Note.—For cases in point, see Cent. Dig. vol. 39, Payment, §§ 272-281.]
Ingraham and Laughlin, JJ., dissenting.
Action by Alfred Kessler and others against John D. Herklotz and others to recover money alleged to have been paid under mistake. On motion to set aside verdict in favor of plaintiffs, and to dismiss the complaint, ordered to be heard in the first instance at the Appellate Division. Motion denied. Judgment for plaintiff.
Argued before PATTERSON, INGRAHAM, LAUGHLIN, HOUGHTON, and SCOTT, JJ.
George A. Strong, for the motion.
Howard Taylor, opposed.

Opinion:
HOUGHTON, J.
The most difficult question involved in this case is the interpretation of the cablegram on which the plaintiffs paid the money to the defendants. The request to plaintiffs by Luermann & Sohn was to pay to defendants $35,000 "on account of Garbrecht & Co." which was done, and a receipt taken from defendants, stating that the payment was so made and received. If the cablegram must of necessity be construed as a request to pay the money for Luermann & Sohn and on their account and credit, irrespective of whose debt it liquidated or who had the benefit of it, then, manifestly, Luermann & Sohn alone are liable, and no cause of action exists against those defendants. If, on the other hand, as insisted by plaintiffs, the cablegram can be legitimately construed as a request by one foreign house to place this sum of monéy with defendant to the credit of Garbrecht & Co., another foreign house, presumptively upon authority and by direction of Garbrecht & Co., then, it seems to me, the plaintiffs proved a good cause of action.
I am inclined to adopt this latter interpretation. Both foreign houses were known to plaintiffs. They knew nothing of the dealings between the defendants and Garbrecht & Co., or between Garbrecht & Co. and Luermann & Sohn. Presumably Garbrecht & Co. had arranged with Luermann & Sohn to have deposited with defendants a sum upon which they could draw, or with which they could deal in the ordinary course of international business. This is the fair meaning of the direction to pay or place "for the account of Garbrecht & Co." If in fact Garbrecht & Co. had made no arrangements with Luermann & Sohn to so place the money to their credit with defendants, and had not authorized it to be done, then the plaintiffs paid over the money under a mistake. Garbrecht & Co. had not made any such arrangement, and had. only demanded that Luermann & Sohn pay their own debt to the defendants. If Luermann & Sohn did not pay this debt, Garbrecht & Co. under their guaranty must do so. Garbrecht & Co. have, therefore, had the benefit of the money paid by plaintiffs to defendants under a mistaken idea as to the situation, and the money has gone to lessen Garbrecht & Co.'s obligation to the defendants. If, therefore, the plaintiffs were justified in assuming from the cablegram that they were to pay over the money to defendants because Garbrecht & Co. had authorized Luermann & Sohn to have it done, the situation comes to this: that Garbrecht & Co. repudiate the acts of a person who plaintiffs had a right to assume was acting for them, and still insist, through defendants, upon keeping the fruits of his unauthorized act.
Unless defendants- have the right to keep the money because it was paid on a debt due from Luermann & Sohn to them, they are a mere depositary for the benefit of Garbrecht & Co.; and, so far as plaintiffs are concerned, that relation is not changed by the fact that Garbrecht & Co. were their contingent debtors and liable for the debt if Luermann & Sohn did not pay. Occupying this position, defendants' rights are dependent on the attitude of Garbrecht & Co. That attitude is that they gave no authority to Luermann & Sohn to pay the money on any such account or state of facts as plaintiffs were authorized to believe that the .cablegram directed to be done. They cannot repudiate the authority which brought the money to them and still keep the money. It is no answer to say that there was no mistake on the part of the defendants and Garbrecht & Co., and that they fully understood how the money was paid. Accepting the money when no authority existed for its payment, or keeping it after repudiation of the authority under which plaintiffs were justified in believing it was paid, is a fraud; and mistake on one side and fraud on the other is sufficient ground for recovery back.
The situation is not one where money is obtained by false pretenses or theft and paid over by the thief to his innocent creditor. The harsh rule of law with respect to stolen money, adopted from necessity, because money cannot be traced, and to insure stability in business transactions, does not apply. None of the parties to the transaction committed a larceny of the money, and neither Garbrecht & Co. nor Luermann & Sohn ever obtained actual possession of it and then paid it over to defendants on their debt. The transaction discloses a simple, commercial misapprehension and business mistake. The office which the money performed was to pay the ultimate debt of the guarantors, Garbrecht & Co. So far as plaintiffs are concerned it is a mere question of' payment under mistaken authority, and Garbrecht & Co. must acknowledge that it was done by their authority or else be deprived of the accruing benefit. The position of defendants has not been changed, for they still have the guaranty of Garbrecht & Co. if they are compelled to refund the money to plaintiffs.
I think the exceptions should be overruled, and judgment directed in favor of plaintiffs.
SCOTT, J., concurs.