Fairbanks v. Sargeant

ment to him. of one-thircl or one-sixth of whatever money or property should be collected out of or received from Zabriskie in discharge of the latter’s debt. 104 N. Y., 108 ; 5 N. Y. State Rep., 531. Ordinarily we should content ourselves with a simple reference to that decision. But its correctness has been so challenged on this appeal, and assailed with so much of force and ability as to justify on our part a reconsideration of the question in the light of the later argument. Let us, therefore, give our attention to the terms of the contract.

Underwood’s claim against Zabriskie grew out of stock transactions. Fairbanks was a lawyer; and not only that, but one exceptionally versed in the peculiar rules and customs of the stock exchange and the law governing that class of transactions. He had already rendered services to Underwood, for which the latter was in his debt, with probably slight ability to pay unless out of uncertain claims against others. Standing in this relation the-parties contracted. Fairbanks agreed to prosecute, and, as far as he was able, collect the specified claims, of which that against. Zabriskie was one. To that extent his agreement was for the rendition of future services. He also agreed to extinguish, and by his contract did extinguish, the debt due him for past services, taking in exchange the covenants of the new agreement. There was, therefore, ample consideration for the promises of Underwood which followed. These were that for the services rendered, and to be rendered by Fairbanks, the latter should receive a fixed share of the money, property or securities which should be obtained from the debtors named. The claims themselves against such debtors were not attempted to be assigned. The title to them remained in Underwood as the legal owner. Suits against the debtors were to be, and were, brought in the name of Underwood, and he alone by the stipulations of the agreement was authorized to dictate on what terms settlements should be made, and when and against whom actions should be brought. He thus, never transferred to Fairbanks the legal title to the claim against Zabriskie, and what he did do was in its ultimate effect one of two-things, as it seems to me, necessarily and inevitably.

The contract was either a simple agreement for compensation to be enforced against Underwood, or it was an equitable assignment of a definite share of the proceeds of the claim against Zabriskie. Obviously it was something more than and quite different from a mere agreement for compensation measured by results. That would have given to Fairbanks only a personal claim against Underwood, and scarcely served to induce on his-part further services and expenses upon a credit already precarious. And, not compensation in general, but a specific share in a specific fund or specific property was the exact and material point, of the contract, upon which the rights of both parties hinged. Underwood, having liberty to take in settlement from his debtors property or securities, was not to be called upon for a share of' their value in cash, or liable generally for a due reward, but was-free to throw Fairbanks upon his contract claim for a share of the: precise thing received as his sole right and only remedy. On the:

■other hand the latter was not to depend upon the solvency or promise of Underwood for his pay, but was made secure by a stipulated right to have as owner a defined share of the fund or proceeds expected to result from his labor and skill. There could be no legal assignment of a fund not in existence or proceeds not realized, but equity treats them as if existing or realized, and the contract for their receipt by Fairbanks was an equitable assignment of the stipulated share to him, and, as a consequence, makes him the equitable assignee of so much of the debt or demand as is represented by his share of the proceeds. I think we have never failed to hold this doctrine on a similar state of facts. We discussed the subject somewhat in Williams v. Ingersoll, 89 N. Y., 508 , and there said “ it is a rule in equity that anything which shows an intention to assign on the one side, and from which an assent to receive may be inferred on the other, wiE operate as an assignment if sustained by a sufficient consideration.” In Thurber v. Chambers, 66 N. Y., 49 , we inferred an equitable assignment upon facts vastly weaker than those in the present case, and the cases in the federal court of Wylie v. Coxe, 15 How., U. S., 415, and Trist v. Child, 21 Wall., 441 , are to the same purport.

The test is an inquiry whether the debtor would be justified in paying the debt or the portion contracted about to the person claiming to be assignee. It is not at all doubtful that Zabriskie, after his liability had been settled at the amount of the bonds which he delivered, and leaving out of view the transaction with Sargeant, would have been perfectly protected in paying over one-third of them to Fairbanks. Up to this point the general term do not differ with us. On the first hearing they exphcitly took this ground, and on the last they intimate no change of opinion. They concede the attitude of the plaintiff as an equitable assignee of one-third of the Zabriskie debt. It was reserved for the learned counsel of the respondent to attack that doctrine on the argument here. The pith of his contention is that Fairbanks had none of the powers and rights which make an assignee, and so was none at all; and this because the agreement reserved to Underwood the right to determine when suits should be brought, and what compromise should be made. But these reserved rights may have lessened the value of the thing assigned without neutralizing or destroying the assignment itself. They related to the process of coUection, and not to the right assigned except as possibly lessened by that process. If no collection had been needed, if Zabriskie had come with the money in his hand to pay the whole debt, and had been apprised of the contract with Fairbanks, he could have paid over, and it would have been his legal duty to have paid over, to the latter his share of the debt as the equitable •owner and assignee of that share. That under the arrangement made he was at liberty to pay less, and that Fairbanks could not object to his paying less, does not prevent Fairbanks from being the equitable assignee of his share of the debt as settled. The learned counsel for the respondent criticises the language of the agreement, in comparison with that used in the Williams case. In that, he says, the assignee was given a lien upon the fund in.

express terms. It seems to me that in the present case the language is stronger instead of weaker. Fairbanks was armed with more than a mere lien by its words. He was “ to have one-sixth of whatever amount of money, securities or property shall be received.”

That is, he was to have, to possess, to own as his the stipulated proportion of the precise thing received, that proportion to be ascertained and measured by its amount or value. And that such was the meaning is further indicated by the expression relating to his monthly salary or “money compensation.” It is in that, manner distinguished from the realized proceeds which he was to have only in their realized form. I have no doubt remaining' that up to this stage of the case, at least, our previous conclusion was entirely sound.

But it does not follow that we are yet absolved from a recollection of the reservations to Underwood which accompanied his equitable assignment to Fairbanks, or a further consideration of their effect; for the former followed that transfer by an assignment of his claim against Zabriskie to Sargeant as collateral security for a debt due to him. There is no real foundation for the distinction now asserted between the facts on the previous trial and those in the present record as it respects the character of that assignment. The distinction was kindly meant as a route of retreat from an indefensible position, but we must decline to avail ourselves of it It may be that we then supposed that the written assignment was absolute in form but delivered and taking effect as a collateral security, while now it appears that the collateral character of the transfer was expressed in the writing itself. The form is of no consequence. Whether the collateral character of the assignment was evidenced by the writing or by the paroi delivery is immaterial; for the fact itself was fully recognized in our previous opinion. Again and again, and with even further reiteration, the transfer was described as collateral, and none of us were for a moment misled in that respect; and so we cannot travel the bridge carefully constructed to encourage a retreat, but should consider the question whether we were right or wrong, which is raised anew by the decision of the general term.

What then were the rights which Sargeant acquired by the assignment of the Zabriskie debt, first, as against Underwood, and second, as against Fairbanks. The counsel on both sides appear to agree that as between assignor and assignee the transfer must be deemed to have been in the nature of a pledge. They unite in saying that a reference to the law governing that class of bailments will accurately describe the relations and rights of the parties and so agreeing we ought to be content. Waiving then for the present any question of rights acquired by Sargeant as a bona fide purchaser, let us determine and measure those which he acquired under the assignment treated as a pledge. The pledgee obtains a special property in the thing pledged while the pledgor remains general owner. If the property consists of a thing in action the pledgee may sue upon it and collect it or receive voluntary payment of it from the debtor. The pledgee may require such pay

ment and the debtor cannot resist his title. To the extent of his debt the pledgee may appropriate the proceeds to his own nse and holds the balance, if any, in trust for the pledgor. But the pledgee cannot compromise the debt without the assent of the pledgor. Garlick v. James, 12 Johns., 146 ; Bowman v. Wood, 15 Mass., 534 . With that assent he may do so, and if he does, the question who it is that we must regard as having made the settlement is matter here in dispute between the litigants. Much depends upon the facts and to those we shall recur in their due order after having measured Sargeant’s right as against Fairbanks.

The latter was equitable assignee of one-third of the Zabriskie debt, and to that extent was the equitable owner. Putting aside still all questions relating to a Iona fide purchase, it follows that Underwood could only pledge what he had and could not incumber the interest of Fairbanks. We so decided on the previous appeal, citing Bush v. Lathrop as that case has been limited. Sargeant therefore became pledgee, or had the rights of a pledgee,, only to the extent of Underwood’s title and obtained no right by pure force of the assignment to the interest already owned by Fairbanks.

It is true that sometimes where one clothes another with an apparent ownership or power of disposition he will not be allowed to assert his right as against an innocent purchaser dealing upon the faith of such apparent ownership, and the opinion of the general term applies that doctrine to Fairbanks, because when becoming assignee he “had placed in Underwood power to act.” We need only say as to that suggestion, that the counsel for the respondent admits that the doctrine is inapplicable to the facts, although he seeks to enlist in his service the fundamental equity on which it is founded. So that I think we correctly held that Sargeant, by his collateral assignment or pledge, acquired no right in, to or against the ownership of Fairbanks.

But, nevertheless, upon what afterward occurred, the respondent confronts us with a very able argument which seeks to turn the flank of the position thus far maintained. It is founded upon the settlement which was made with Zabriskie, and which appears to have been negotiated by and between three persons, viz. : Underwood acting for himself, Monell representing Sargeant, and Gray as agent for Zabriskie. The terms of the arrangement, stated in their legal order, were that Sargeant should surrender his assignment to enable Underwood to effectually release Zabriskie; that the latter should thereupon pay Underwood $20,000 in bonds in full of his debt and be wholly discharged; that Underwood should then pay Sargeant the same bonds in full of his debt, and should be finally released. If I state these facts somewhat differently from the view presented in our previous decision, it is not because there were not strong circumstances sustaining that view. The whole arrangement was planned and negotiated by Sargeant and Zabriskie, represented respectively by Monell and Gray, Underwood simply giving his assent. The bonds, it is found, did not go through his hands personally, and he never even knew that they were substituted for money, but they

passed directly from Zabriskie through Gray to Sargeant. And yet the truth is that upon the theory of a pledge now, but not then, conceded it required both Underwood and Sargeant to act together and concurrently in order to effect the result. It is said that Sargeant did not make the settlement, for he was only pledgee and could not; but with equal force it may be urged that Underwood did not, for he was only general owner and could not. The palpable truth is that both acted, and the compromise was the product of their joint action. And so, without any worry over the question as to which of them made the settlement, I am willing to put the facts into what is claimed to be their logical and legal order, and yield to the respondent the benefit of saying that Sargeant ■enabled Underwood to settle and Underwood settled. Upon that assumption it is apparent that Sargeant must he put in one of two positions. We are compelled to say that he received the bonds from Underwood by force of the assignment which he held and which he surrendered only upon that condition, which is the truth; or that, having abandoned his hold on the Zabriskie debt, he took them simply from Underwood in discharge of the latter’s liability. The last alternative may be dismissed because it is contrary to the facts. Sargeant never abandoned Ms hold on the debt. Has fingers once closed upon it, were never unlocked. His surrender of the assignment was on condition of the receipt of its fruits, and they took its place as the thing pledged, Farwell v. Imp. Bk., 90 N. Y., 483 , and subject as was the debt to the right of Fairbanks. The pledgee may return the property to the pledgor for some special purpose without losing his right, and the pledge will remain. Macomber v. Parker, 14 Pick., 497 . The surrender of the assignment and the ueceipts of its fruits were legally at one and the same instant, and there never was a moment when Sargeant stood merely in the attitude of a purchaser of the bonds. The situation was therefore ¡aptly described by the learned counsel for the respondent in his ¡supplemental brief, although that description was explicitly .stated to be for the purposes of his final argument, which it is now our duty to meet. I use Ms words because I have one which .are so accurate and compact. He says : “Fairbanks and Sargeant were both assignees of a chose in action, that is, holders of a mere equity, and as such assignees it may be admitted for the sake of the argument, but for no other purpose, that Fairbanks had a better title because it was a prior one. * * * Sargeant, having acquired his equity without notice of Fairbanks' right, proceeded to make his title available and reduce the chose in action to possession by inducing Underwood to make a settlement or by making a settlement himself -and procuring Underwood’s assent to it, whichever way any one may please to put it” That is the learned counsel’s sketch of the situation, which corresponds perfectly with the opening sentence of our previous opinion and which stated the fundamental question involved. It was a conflict of equities equal except in time.

The learned counsel then formulates his solution of the diffi

culty. He says: “The rule is that an assignee of a mere equity, like a chose in action, must indeed stand upon the title of Ms assignor, and must fail if Ms assignor had made a prior assignment of the same eqrnty, but if, in addition to Ms equity, he succeeds in acquiring the legal title without notice of the prior assignment, that title cannot be taken from him by the prior assignee.” I concede the rule for the sake of the argument, and may admit for the same purpose, and for that only, that it would end tMs case in the defendant’s favor were it not for the further fact that Fairbanks not only had the prior one of the two equal equities, but also obtained the prior legal title to his interest. For recall events in their order, Gray, who represented Zabriskie in the negotiation, acted for all parties in the execution of the agreement Underwood gave him a formal release of Zabriskie, but upon the condition that he should deliver it only upon receiving from Zabrislde the stipulated payment. Gray testifies: “ Mr. Underwood had prepared the release to ZabrisMe for the $20,000. He gave it to me, and requested me not to deliver it to Zabriskie until I received the $20,000. I took it in that way. * * * He wanted me to hold the release and bonds in escrow for him, Underwood, and when Judge Monell should bring a release, and the assignment he held against Underwood, he would authorize me to deliver the bonds or money.” The moment the release was delivered the bonds became in the legal possession of Underwood tM’ough the actual possession of his agent Gray, duly constituted for that special purpose. Underwood, therefore, at that instant, had both the legal title and possession, and it was from and through him, and not from or through Zabriskie, that Sargeant acquired his title. At the moment, therefore, when the bonds became Underwood’s and in the possession of his agent, the equity of Fairbanks became a legal title to one-third of the bonds in the hands of his co-owner. His equity was gone. The debt to which it pertained was dead and extinguished, and in the instant that the bonds came to the legal ownership of Underwood, the share of Fairbanks came to his legal ownership, and the possession of Underwood became his possession. For, consider. Put Sargeant and his rights out of the way to simplify the question.

If, after the delivery of the release to Zabriskie, and the receipt of the payment by Gray, Fairbanks had proceeded to assert his right, is there the least doubt that he could have treated Underwood as a tenant in common with himself of the bonds, or as holding for him his divisible share ? I think there can be no question about that. When the bonds struck the hands of Underwood the equity of Fairbanks became a legal title to the extent of his right. That right was equitable while the proceeds were unrealized, because only the power of equity could treat them as realized; but when they became actually realized, and passed to Underwood as the exact and tangible proceeds contemplated by the contract, there was no longer need of the power of equity to imagine them, for there they were, the very realized proceeds, one-third of which by force of the contract was that instant the prop-

erty of Fairbanks by a legal title. Underwood could hold them in no other way than for himself and his associate, and so not only was the equity of Sargeant, through his assignment, subject" to the prior equity of Fairbanks, but the latter drew to himself a-, legal title prior to the legal title of Sargeant.

And here, it seems to me, we get out into the open air where-vision becomes clearer, and are enabled to see the incorrectness of the argument founded upon the assumed attitude of Sargeant as a Iona fide purchaser without notice. The counsel’s brief declares " If Underwood never had assigned the Zabriskie claim to Sargeant, but had received the $20,000 directly from Zabriskie, and had then paid it over to Sargeant in consideration of a release by the latter of his debt, there could not have been a pretense that the plaintiff had any just claim upon it. The equitable owner of moneys cannot follow them into the hands of a purchaser for value without notice.” It is not needful to discuss that proposition, for we now see that it is not an equitable owner of moneys who pursues, but a legal owner of property following what is his in the hands of .one who got no title, and could get none, however innocent his action, or expensive his contract, Ballard v. Burgett, 40 N. Y., 314 ; Weaver v. Barden, 49 id., 286; it being admitted that in this branch of the argument no aid is derived from the doctrine of negotiability in its strict sense. And I think it becomes obvious that, as Fairbanks’ equity was prior to that of Sargeant, so the farmer’s legal title was paramount to that of the latter.

Nor is the result changed if we disregard the order in which the law arrays the component events of the one completed transaction, and treat them according to the fact as occurring at one and the-same instant of time. In that view there is no priority of legal title in Fairbanks over Sargeant, neither is there any in Sargeant over Fairbanks, and the legal titles vesting equally and at the same instant, the prior equity of Fairbanks is not defeated.

Hitherto I have treated the equities of the parties on their merits as equal but without overlooking the contention which I promised to recollect that those of Sargeant were superior in their quality because Fairbanks left in Underwood the power to bring" or not to bring suits and the sole right to compromise. We are invited to make ownership the synonym of dominion, control, and to measure the respective rights by that" standard. Very well; let us do so. Nothing need be said about the first reservation, since Sargeant took his assignment after suit had been commenced against Zabriskie and when Fairbanks was actively prosecuting it and had become the master of its movement and Sargeant knew both facts; and now as to the right to compromise; Fairbanks had only an equitable right to the extent of his share; Sargeant had only an equitable right to the extent of his debt; one had an equitable property in the Zabriskie claim; the other had a special property in it which was also equitable. Fail-banks left Underwood apparent owner; Sargeant left him general owner with the-same outside mask. If Fairbanks had no right to compromise; neither had Sargeant; if the former left that power in Underwood

so also did the latter. The sole difference is that Sargeant could resist a compromise below the amount of his debt and Fairbanks could not prevent one at all. But that difference is quite balanced by the fact that one equity was supported by new services rendered on the faith of its existence, while the consideration of the other was a precedent debt. Sargeant, if his equity failed, could be restored to his original position; he would have lost nothing, but only failed to gain something, and would not be bound by a release fraudulently obtained, or mistakenly given; while Fairbanks could not get back his services and labor wasted and expended in vain. The bonds in dispute were the product almost wholly of the persevering skill of Fairbanks. The attorney of Underwood in New Jersey describes as a witness how utterly he was dependent upon the plaintiff’s knowledge and ability. He persevered until he literally made Zabriskie’s life miserable and drove to his aid the friends who advanced the means of compromise. While Fairbanks was training his» guns upon Zabriskie, furnishing the powder and bearing the smoke of the battle, and faithfully earning his stipulated share of results, Sargeant was looking to the possible victory from a station out of the smoke and noise as a means of collecting a debt of Underwood, the amount and details of which he did not know. If it is true that Fairbanks notified no one of his rights, at least no occasion seemed to require that notification; while, on the other hand, Sargeant’s counsel called upon Fairbanks urging him to push Zabriskie, and never revealed that his client held an assignment of the claim and meant to have the benefit of the latter’s services and leave him to an insolvent for his pay. The equity of Fairbanks was strengthened by his effort to create the fund; that of Sargeant was founded on the collection of a desperate debt. That he may not be able to use the product of Fairbanks’ labor and skill to repair his own misfortunes in stocks does not in the least disturb our sense of justice ; so that on a careful comparison of equities, I think we deal liberally with Sargeant when we treat them merely as equal on their merits and in their inherent qualities.

We are thus required to affirm the correctness of our previous decision in all its material and essential elements. If we have departed from some of its details it is because the latter argument has led us over a new and different road, and fuller reflection has in some minor matters shifted the balance of judgment; but on the whole case we stand where we did, and satisfied that the plaintiff should succeed.

The question of damages we think was correctly decided by the special term, and it follows that the judgment of the general term should be reversed and that of the special term affirmed, with costs.

All concur, except Gray, J., not sitting.