Paddon v. Williams — 24 N.Y. Super. Ct. 340

Majority

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John W. Paddon, plaintiff and respondent, vs. Isaac Williams et al. defendants and appellants.

Headnote

1. One in whose name a business is carried on by other persons in order to protect it and their funds, against their creditors, as between himself and them and persons claiming under them, has the legal title to property or the proceeds of property intrusted to him by third persons, in the course of such business, notwithstanding any secret agreement by him .with the persons for whpmhe conducts such business that he shall be only their clerk; and he may maintain an action to recover from them any thing converted by them to their own use 'against'his will.

2. If they have any remedy against his claim to be the owper of the assets, it is only by an action for equitable relief, in which the rights of persons dealing in good faith with him may be protected, and the suins due them be first paid.

(Before Bosworth, Ch. J. and White and Monell, JJ.)

Heard November 6,1863;

decided November 28, 1863.

This was an appeal by the defendants from an order-denying a new trial after verdict against them, and from the judgment 'entered on the verdict.

The action was brought against the defendants Isaac Williams and William . Menck to -recover the amount of ten bank checks which the plaintiff, Paddon, alleged in his complaint,, were payable-to his order and belonged to him, and he had delivered to the defendant Williams, as his clerk, to deposit in bank to the plaintiff’s credit, and which Williams embezzled and converted to his own use with the complicity of the defendant Menck, to whom Williams had delivered them, and who had applied them in payment of a debt due to him from Williams.

The answer of the defendant Williams denied that he was the plaintiff’s clerk, and that the checks belonged to the plaintiff, and averred that they belonged to the firm of D. M. Berry & Co., of .which firm the defendant Williams was a member, and that the plaintiff was their clerk; and that-he (Williams) had taken the checks as his own property; that .the plaintiff had long been the clerk of D. M. Berry & Co., who were commission dealers in produce, and when they became so

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embarrassed that they could not safely continue business in their own names, he induced them to open a bank account and a new set of books in his name, and enter consignments and deposit moneys accordingly; but that with these exceptions, it was agreed that the business of the firm should be transacted as it had theretofore been, and the interest of the members of the firm should remain as it then was ; the plaintiff to continue in his capacity of clerk, and to be paid the same salary, and in the same way, as it had theretofore been paid. That in pursuance of this plan there was a nominal dissolution of partnership, which it was agreed should not be real, but the relations of the parties were to continue and did continue as before, except that the name of the plaintiff was to be used instead of that of the firm; that when the defendant demanded an accounting, the plaintiff refused it, and claimed that the business belonged to himself, and that the defendant was a mere clerk of his ; and in order to protect himself against such fraud, he had appropriated the checks, and that he was ready to account, but denied that any thing would be due from him upon an accounting.

The defendant Menck answered, averring that the checks had been the property of Williams who had delivered them to him in payment of a debt.

The action was tried before Mr. Justice Barbour and a jury on the 12th day of November, 1862.

It appeard that the checks, with one exception, were received in payment for merchandise which had been consigned to John W. Paddon, the plaintiff, by various persons and which had been accordingly sold.

Upon the opening of the defense, in answer to objections, the defendant’s counsel made the following offer of proof:

That it was agreed between the defendant Williams and the two Messrs. Berry and Mr. Paddon, the plaintiff, that the business of “ D. M. Berry & Co. ” was to be can.ied.on by having the goods consigned to “D. M. Berry & Co.,” and sold by them, and the proceeds of all sales deposited in the name of the plaintiff, Paddon, and that the business was so carried on

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a considerable length of time. That then there was a pretended dissolution pf partnership and an agreement between the same parties that the goods should be consigned to the plaintiff, and the business done in his name. But, that during all this time the agreement was between all the parties, including the plaintiff, that the business was to belong to the firm of “ D. M. Berry & Go.,” in fact, and that the plaintiff was to be simply a clerk. The members of the old firm were to fake all the gains, and profits, and proceeds of the business, and that that understanding was in operation when Mr. Williams took the checks in question. That he took the checks and turned them over to Mr. Menck,. in payment of an individual debt, which was for the capital which Mr. Williams put into the business.

The court held that the facts constituted no defense, and-excluded the evidence, denied a motion to dismiss the complaint as. against the defendant Menck, and directed a verdict for the plaintiff.

The defendants moved for a new trial, which being denied, and judgment having been entered on the verdict, they now appealed.

William Fullerton, for the defendants, appellants.

William M. Evarts, for the plaintiff, respondent.

Ho authority is cited by either counsel, in support of any propositions argued on this appeal.

The plaintiff was possessed of ten checks, payable to his own order ; he indorsed them, and delivered them to his clerk, the defendant, Williams, with instructions to deposit them to the plaintiff’s credit in the Hanover Bank. Williams received them, accompanied with such instructions, and virtually promised to so deposit them. Instead of doing so, Williams transferred them to the defendant Menck. Williams and Menck refusing to return the checks, this action is brought to recover their amount.

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It was not contended on the argument that Menck has any defense unless Williams has. It is quite clear on the evidence that Menck has no rights superior to those which Williams had. Clark testifies that on' the 7th of March, “Mr. Menck stated that Mr. Williams had come to him before taking the checks, asking what he should do.” It was also testified that Menck said to the plaintiff in the interview when the checks were demanded, “I will come Monday afternoon, at four o’clock ; I will come and settle the matter with you. I am free to confess that when I see I am wrong, I am willing to give upthat the settlement was to be a return of the checks or their equivalent in money. Menck also said, “ I have been advised that this money must not be squandered away.” All this imports that Menck had' notice when he took the checks, how-Williams got them. It was no part of the evidence offered and rejected that he took them without notice. This brings us to a consideration of the defense. The defense is that, although Paddon was doing business ostensibly as principal, and Williams was apparently his clerk, and it was so represented to the public to induce business ; yet in fact the business was that of a ‘firm formerly trading under the name of D. M. Berry & Co., of whom Williams was one; that the plaintiff was in fact their clerk ; that the checks were therefore the property of D. M. Berry & Co.,- and that Williams, as between him and the plaintiff, had a right to take them nolens volens, and dispose of them as he pleased.

If the property of the old firm of D. M. Berry & Co. was transferred to the plaintiff under the circumstances stated in the answer, it was evidently done to place it beyond the reach of the creditors of that firm. Although that fact would not disable those creditors from reaching it, yet as between the plaintiff and such firm the title would be in him, and D. M. Berry & Co. could not reclaim it by legal proceedings ; nor defend themselves against a suit for taking it by force.

It would be a fraud upon all persons consigning their property to Paddon for sale, believing him to be the principal in and proprietor of the business, to permit D. M. Berry & Co.

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to take. the .proceeds of property thus consigned, and dispose of it as their own. Hine of these checks are for the price of property consigned by third persons to Paddon for sale, and sold by him, pursuant to such consignments. By virtue of the contract between Paddon and those persons, the legal title to the consigned property, as against all .third persons, was vested in- Paddon, and the proceeds were his. As between the consignors, Paddon, D. M. Berry & Go., and all creditors of the latter firm, or of either member of it, the consignors are entitled to the proceeds of their property.

To.-prevent fraud upon the public, and upon any person consigning his property to Paddon for sale, the -legal relations 'between the'parties should be held to be such as Paddon and D. M.: Berry &'Co. have represented them to the public. If D. M. Berry & Go. have any rights as between themselves and Paddon, which a court of ■ equity will protect, founded upon their alleged agreed relation to each other, they should be treated as équitáble rights, and enforced in a suit proceeding .on equitable -grounds, and looking to the protection and payment, as the primary consideration of the creditors of Pad-don-in rekpect of-business represented to the world, as his, and only his.

He should be treated as having the -legal title and the legal right to reclaim any .property from D. M. Berry & Co., which they may forcibly or against the will of Paddon convert to their own use.

The-'evidence proffered and rejected, was, “ that during" all this -time the agreement was between all the parties,- including' the -plaintiff, that the. business was to belong-to D. M. Berry & Co., and that" the plaintiff, Paddon, was to .be simply a clerk. ■ The members of the old firm of D. M, Berry &"Co. were to: take all the gains arid profits, and proceeds of the business, and that -that understanding was in operation when Mr. Williams took the cheek in question.”

According to the terms of this offer, the legal title to the corpus of the property and effects constituting the capital and resources of the business, was not to be in D. M. Berry & Co.,

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but in Paddon. Their right extended to the gains and profits, and only that. They would have no right, legal or equitable, to violently or fraudulently possess themselves of the corpus.

They might file a bill, if the case be not so infected with fraud that a court would not lend its aid, and if there could not be an amicable adjustment, for an accounting and an application of the property of Paddon in that business, to pay its debts, and then distribute the surplus. The. protection of those dealing with Paddon, and the prevention of fraud, requires a court, in a case like this, to hold that Williams has no right to convert any part of the property against the consent of Paddon, and that his only remedy is by .action for equitable relief, in which the rights of persons dealing in good faith with Paddon will be protected, snd the sums due them be first paid.

The judgment should be affirmed.