Warner et al. v. Lee

Warner et al. v. Lee. Principal and Agent. An agent, to whom a note is remitted by a broker for collection, cannot hold the proceeds, as against the broker’s principal, for a debt of the broker, when he has notice of the course of business of the latter, and has made no advances to him, after the receipt of the note. Appeal from the general term of the Superior Court of the city of New York, where a judgment in favor of the plaintiffs, on the report of a referee, had heen affirmed. This was an action for money had and received to the use of the plaintiffs, under the following circumstances: *On the 26th April 1845, the plaintiffs were the holders of the promissory note of Osborn & *- Whallon, for $358.75, to mature on the 15th May, then next. On the said 26th April 1845, the plaintiffs indorsed the note, in blank, and delivered it to John T. Smith & Co., their brokers, for collection. On the 5th May, John T. Smith & Co. sent the note to the defendant in a letter, stating that it was “inclosed for collection;” having first filled up the plaintiffs’ blank indorsement with the name of the defendant. The latter forwarded the note to the residence of the makers, by whom it was paid at maturity, and the defendant received the proceeds on the 17th May. On the 16th May 1845, John T. Smith & Co. failed in business, and stopped payment; being then indebted to the defendant; on the 23d, they gave the plaintiffs an order on the defendant for the proceeds of the note, which was presented on the 25th, but the defendant declined to comply with it. The plaintiffs had received no advances from John T. Smith & Co. upon the note; nor had the defendant made any advances to the latter on the credit thereof. The note was not credited to them until the 17th May, and after that date, they received no advances from the defendant. John T. Smith & Co. were largely engaged in making collections of notes for merchants in New York, and the defendant was aware of that fact. Their compensation consisted in a deduction of the current rate of exchange, to which was generally added a charge of one-fourth of one per cent. The defendant had been in the habit of doing business with John T. Smith & Co. for several years;-each sending-paper and- other ¡securities to the other, for collection. ■ Balances in favor of the-defendant were usually collected by draft in favor of one of the Albany banks, and by this means their accounts were generally kept nearly Balanced. This-suit was originally-brought in.tfte supreme court, by which it was transferred to the superior court. - The referee reported in favor of the defendant; and the judgment entered on his-report having been-- affirmed - at general -term,-and a motion to set aside the report denied, the defendant took this- appeal. - * Edwards, for the appellant. Hill, for the respondent. [MAJORITY — Johnson, J.] Johnson, J. — When the defendant received this note, he had notice, from its indorsement, from-the course of business of Smith & Co., with which he .was acquainted, and from the letter which - inclosed the note to him,-that it was placed in their hands for collection only, on account of the owners, the plaintiffs in this suit. Under these circumstances, if he had made advances updn account of it, he could not have held the note, nor its proceeds, against the plaintiffs. (Clark v. Merchants’ Bank, 2 N. Y. 380.) Of course, in this case, where he had made no advances on the faith of the note, he cannot acquire a title to it, by bringing it into account with Smith & Co., after its payment, and calling the transaction a discount. The judgment should be affirmed. Judgment affirmed.. See Scott v. Ocean Bank, 23 N. Y. 289 ; s. c. 5 Bos. 192; Hoffman v. Miller, 9 Ibid. 334; Commercial Bank of Clyde v. Marine Bank, 1 Abb. Dec. 405. It is difficult to reconcile these cases with the rule laid down' by the supreme court of the United States, in Swift v. Tyson, 16 Pet. 1; and Bank of the Metropolis v. New England Bank, 1 How. 234; and the decision of the supreme court of Massachusetts, in Le Breton v. Peirce, 2 Allen 8; though the learned judge who delivered the opinion of the court, in Hoffman v. Miller, attempted to distinguish them. On this interesting question, see the learned note of Judge Bedeield, in 10 Am; L. Beg 35-42.