Opinion
December Term, 1896.
James L. Bishop and Frederic A. Ward, for the appellant.
Joseph H. Choate and Francis Lynde Stetson, for the respondents.
The appellant is the receiver of the copartnership of Field, Lindley, Wiechers Co., who, during the year 1891, carried on business as bankers and brokers in the city of New York. The individual members of the firm were Edward M. Field, Daniel A. Lindley, John F. Wiechers and Herman C. Hilmers. The copartnership was formed in April, 1891, and was the successor of the firm of Field, Lindley Co., of which latter firm said Edward M. Field and Daniel A. Lindley had been members. The firm of Field, Lindley Co. was indebted to the firm of Drexel, Morgan Co., the respondents on this appeal, in a sum exceeding $500,000, for which Drexel, Morgan Co. held Field, Lindley Co.'s demand note and certain collateral securities and the guaranty of Cyrus W. Field, who was the father of Edward M. Field. The trial court found as facts that:
"Throughout the existence of the new firm its business and affairs were conducted absolutely and wholly according to the direction of Edward M. Field, to whom the other three partners confided the unrestricted, absolute and entire control and management of the business, allowing him to conduct it as though it were his own, and in its behalf to incur liabilities and dispose of assets absolutely according to his own judgment.
"To the defendants, Drexel, Morgan Co., the business of Field, Lindley, Wiechers Co., as conducted by Edward M. Field, was apparently the same as and a continuation of that of Field, Lindley Company, and such appearance was a natural result of the conduct and acquiescence of the other members of the new firm, from the formation and during the entire continuance thereof.
"In fact, the business and assets of Field, Lindley Co. were so mingled with those of Field, Lindley, Wiechers Co. as to establish a practical identity between the two firms."
After the formation of the new firm frequent demands were made upon Edward M. Field by Drexel, Morgan Co. for the payment of the said indebtedness, and Field had agreed to pay $100,000 on August 8, 1891. On that day he drew a check of the firm of Field, Lindley, Wiechers Co. upon the Seaboard National Bank for the sum of $100,666.67, payable to the order of William T. Litson, who was the clerk in the employ of said firm, and said check having been indorsed by Litson, payable to the order of Drexel, Morgan Co., was sent by Field to Mr. Coster, one of the members of the latter firm, in a letter, in which he wrote as follows: "I inclose herewith our check, certified, to the order of Drexel, Morgan Co., for $100,666.67, which includes interest at six per cent to August 10th. Will you please keep the securities until next week. I will let you know as early as possible the day you may expect the next payment." On August 20, 1891, Field sent to Drexel, Morgan Co. a second check of the said firm of Field, Lindley, Wiechers Co. upon the Seaboard Bank, payable to the order of Drexel, Morgan Co., for $30,255.11. Both of these checks were signed "Field, Lindley, Wiechers Co., per pro Field, Lindley, Wiechers Co.," and both were certified by the Seaboard Bank before they were sent to Drexel, Morgan Co. Both of them were deposited by Drexel, Morgan Co. in their bank and applied in payment of the indebtedness of Field, Lindley Co. The first check was applied to pay two notes, one of $70,000 and one of $30,000, and the amount of the check corresponded exactly with the amount of principal and interest of said two notes, and the payments were indorsed on the notes as follows: "Interest and principal paid August 8th, 1891." The notes, however, were not delivered to Field, but were retained by Drexel, Morgan Co. The second check was applied upon a note of $70,000, dated June 24, 1890, and there was indorsed thereon as follows: "August 20th, 1891, received $30,000 and interest to date." The letter in which the first check was inclosed was written upon the paper of Field, Lindley, Wiechers Co., which gave in full the name of each member of the firm. At the time the payments were made, the firm of Field, Lindley, Wiechers Co. was insolvent, and on November 27, 1891, they made a general assignment for the benefit of their creditors. This assignment was subsequently set aside at the suit of a creditor, and the plaintiff was appointed the receiver of the firm, and this action was brought by him to recover from Drexel, Morgan Co. the payments made to that firm as aforesaid.
The trial court further found that:
"Drexel, Morgan Co. received these two checks in absolute good faith in payment of their said debts to the extent of such checks; they then believed, and had no reason to doubt, that Field, Lindley, Wiechers Co. and all its members were absolutely solvent, and that said firm and the said Cyrus W. Field were possessed of and controlled ample means.
"Drexel, Morgan Co. did not know William T. Litson, the payee of said check of August 8th, 1891, nor did they know his relation to the firm of Field, Lindley, Wiechers Co.
"Drexel, Morgan Co. did not know, nor did they suspect, nor were they informed until February, 1894, that these checks had been delivered or paid to them without full authority.
"In the meantime and in perfect good faith, Drexel, Morgan Co. had made a final settlement of all their claims against Cyrus W. Field, then deceased, and his estate on account of his guaranty of said indebtedness of Field, Lindley Company, and had forever and finally released his estate from any and all further claim on account thereof.
"In making such settlement and in giving such release, Drexel, Morgan Co., in good faith and in recognition and confirmation of the said two payments of August 8th and August 20th, 1891, and relying upon such payments as an actual extinguishment of that extent of the debt of Field, Lindley Co., did accept in discharge of the obligation of Cyrus W. Field upon his said guaranty such sum and only such sum as was sufficient to pay the said indebtedness of Field, Lindley Company remaining unpaid after allowing and deducting as payment the whole amount of the said two checks of August 8th and August 20th, 1891, and after applying in payment thereof all the collateral securities, excepting certain certificates of stock of the Washington Building Company which were fictitious and worthless. * * *
"The use of these moneys or checks by Edward M. Field, in payment of the debts of Field, Lindley Company, was permitted and acquiesced in by all the members of the firm of Field, Lindley, Wiechers Company, in the sense that they allowed him absolute and unrestricted control of the moneys of the said firm."
It appears, however, in the testimony that the action of Edward M. Field in making these payments was unknown to his copartners until after the making of the assignment. The payments appeared on the books of the firm as a loan made to Drexel, Morgan Co. in the following form:
"DREXEL, MORGAN Co., in account current with FIELD, LINDLEY, WIECHERS Co.
" Dr. Loan account. Cr. "1891.
"August 8th. To cash .......................... $100,000 "August 20th. " " .......................... 30,000"
The transaction, so far as the other members of the firm were concerned, must, therefore, be deemed wholly unauthorized. The learned judge at Special Term gave to the certified check the character of money and treated the payments made to Drexel, Morgan Co. as if they had been made in money, and applied to the case the familiar rule, that where money is received in payment of an existing debt, without knowledge or means of knowledge on the part of the one receiving it that the debtor paying had not the rightful ownership of it, the payment is good and the recipient is under no legal obligation to repay it to the rightful owner. It is the claim of the learned counsel for the appellant that this principle has no application to the case presented. In his argument he distinguishes in reference to the right of recovery between a creditor's action and an action by the owner of the misapplied property, and contends that the payments made to Drexel, Morgan Co. were appropriations of a part of the assets of an insolvent firm to the payment of an individual debt of two of the partners; that such an appropriation was fraudulent as against the firm creditors, and that the presumption of fraud arose from the character of the act.
In considering the questions that are presented on this appeal, we assume that Edward M. Field knew, when he drew the checks in question, that his firm was hopelessly insolvent; that Drexel, Morgan Co. knew of the liquidation of the firm of Field, Lindley Co. and the formation and existence of the new firm of Field, Lindley, Wiechers Co.; that the new firm in fact had not assumed the debts of the old firm.
The law is quite well settled that one partner cannot, without the consent of his copartners, give a partnership obligation in payment of his individual debt or transfer partnership property for a like purpose to a creditor who had knowledge that the property so transferred is the property of the partnership. ( Bernheimer v. Rindskopf, 116 N.Y. 428; Bulger v. Rosa, 119 id. 459.) This rule is applicable to a case where money belonging to a partnership is paid to a creditor of an individual partner, if such creditor knows that the money received belonged to the partnership. ( Mecutchen v. Kennady, 27 N.J.L. 230; Gallagher's Appeal, 114 Penn. St. 353.)
In such a case the property or money misapplied may be followed and recovered until it reaches the hands of a bona fide purchaser for value. But it is equally well settled that a payment of money to a creditor who receives it in discharge of an existing debt without knowledge or means of knowledge that it is the property of another than the one paying, is good and does not create a liability on the part of the recipient to the true owner. ( Justh v. National Bank of the Commonwealth, 56 N.Y. 478; Stephens v. The Board of Education, 79 id. 187; Southwick v. First National Bank, 84 id. 434; Newhall v. Wyatt, 139 id. 452; Goshen National Bank v. The State, 141 id. 379; Hatch v. The Fourth National Bank, 147 id. 184.)
I do not assent to the proposition that a certified check, in reference to payments made with it, is to be treated as cash or as of the character of a bank note. Such might be the character attributed to it if it was the check of a third person in no way identified with the parties to the transaction in question. A check differs materially from a bank note. The latter is issued as currency under legal restrictions which give to it the character of money. The check is not currency, although it may pass current from hand to hand; the recipient of the check must always be chargeable with knowledge of the name of the drawer thereof, and must be deemed to have such information as is properly to be inferred from knowledge of that fact. But when the recipient of the check has collected the money upon it, he is in precisely the same situation as if he had received the money in the first instance with such knowledge as to the real ownership thereof as is to be imputed to him from the fact appearing on the face of the check. In very many of the cases cited by the respondents the individual debtor either paid to his creditor money or gave his own check upon a bank, and no facts appeared which charged in any way the recipient of the money with knowledge that the funds paid or drawn upon were those of another person. In this respect the case before us differs from most of those cited upon the respondents' brief. Here there is no doubt that Drexel, Morgan Co. knew that the checks they received were those of Field, Lindley, Wiechers Co. Such fact was apparent upon the face of the instruments. The signatures to the checks were both printed and written, and the letter in which the first check was inclosed had printed upon it the firm name and the names of the individual partners, and the writer therein informed Drexel, Morgan Co. that he inclosed "our check." This expression was susceptible of no other meaning than that the check was that of the firm of Field, Lindley, Wiechers Co., and not that of Field, Lindley Co. The money came into the possession of Drexel, Morgan Co. when the checks were collected through their bank, and their right to retain the same is to be determined as of that time and with reference to such knowledge as they then had as to the rightful ownership thereof. There is no claim that they had any actual knowledge that the money obtained on the checks in question belonged to the firm of Field, Lindley, Wiechers Co., and all the knowledge on that subject that they are to be charged with is such as was to be inferred from the face of the checks in question.
The question, therefore, upon which the decision of this case turns is whether the form of the checks constituted notice that the funds of the partnership of Field, Lindley, Wiechers Co. were being used by Field to pay the individual debt of himself and Lindley. We must assume that the respondents knew that the funds came from the possession of the partnership, but I do not see how the checks charged them with greater notice than that, and I am of the opinion that the mere fact that the checks were firm checks is not sufficient to impute to them knowledge that the money obtained thereon was money of the partnership. It was well said, I think, in Sterling v. Jaudon (48 Barb. 459) that the presumption might as well be indulged in that the firm held money belonging to the individual partner as that he was guilty of a fraud upon his partners.
But the extent to which such a check may be treated as notice is settled, it seems to me, in the case of The Goshen Bank v. The State ( supra). In that case the cashier of the bank, who was the county treasurer, sent to the Comptroller of the State in payment of his individual debt to the State for a balance due for taxes, a draft of the Goshen Bank upon the Importers and Traders' National Bank of New York, signed by himself as cashier. This draft the Comptroller received and caused to be collected, and the money was paid into the treasury of the State. It was proven that the cashier paid no money to the Goshen Bank for the draft, and made no entry upon the books of the bank showing the drawing of the same or its use, and that he had not then or thereafter any money to his credit in the bank. It was held by the Court of Appeals that the State was not liable to refund the money. In that case the Comptroller knew that the draft received was that of the bank and that it was delivered to day an individual debt of the cashier. In the case before us the respondents knew that the check received by them was a firm check and was given to pay the individual debt of two members of the firm. In respect to the extent of the notice given by the form of the check and draft the facts of the two cases are alike. The court held in the Goshen Bank case that the form of the draft did not constitute notice that the funds of the bank were being used to pay the cashier's private debt, Judge PECKHAM saying: "He would only be so using them in case he did not pay for the draft, and its form might be the same even if he had paid for it in full. * * * The presumption would be that he had performed his duty and paid for the draft, and that it, therefore, was his property."
The same presumption must arise in this case. Field, Lindley, Wiechers Co. were bankers and brokers. They were engaged in a large and extensive business. Two of its leading members had been members of the old firm, and while there had been no assumption of the debts of the old firm nor of the debt due Drexel, Morgan Co., the new firm had succeeded generally to the assets and accounts of the old firm, and had, as the court found, assumed some of its liabilities. It would have been unusual to have paid so large a sum in money or currency, and, as the debt paid was that of two members of the existing firm, the natural way of paying it would have been by the check of the existing firm, and, if Field and Lindley had deposited with the firm the money to make the payment, the manner of making it and the form of the checks used would have differed in no respect from those delivered to Drexel, Morgan Co. There was, therefore, nothing suspicious or unusual in paying a debt of the old firm with a check of the new concern nor any notice that in so doing the funds of the new partnership were being improperly used.
In commenting upon the Goshen Bank case, the learned counsel for the appellant says in his brief that if the bank had been insolvent, and the officers, knowing of its insolvency, had drawn the draft in question to pay the individual debt of the cashier, that in such a case the receiver of the bank could have recovered the money for the fraudulent transfer for the reason that the transaction was between the bank and the State. We need not now concern ourselves with the question as to what would be the result of such a claim provided the payment was the act of the bank itself. But I am unable to see how the rule of law applicable to the case would have been different if the fact had been that the bank at the time the cashier delivered the draft to the Comptroller was insolvent. I know of no principle of law which would permit a recovery, by creditors of an insolvent, of money so misapplied, and upon the same state of facts preclude a recovery by the solvent owner of the fund.
We are of the opinion that the case was properly disposed of at the Special Term, and the judgment should be affirmed, with costs.
All concurred, except BARTLETT, J., not sitting.
Judgment affirmed, with costs.