Ernst Thalmann and Others, Copartners, Trading under the Firm Name of Ladenburg, Thalmann & Company, Respondents, v. John H. Giles and Others, Copartners, Trading under the Firm Name of McFarlan & Company, Appellants

Ernst Thalmann and Others, Copartners, Trading under the Firm Name of Ladenburg, Thalmann & Company, Respondents, v. John H. Giles and Others, Copartners, Trading under the Firm Name of McFarlan & Company, Appellants. First Department, December 21, 1906. Sale — action by creditor of seller to assert lien on goods against a buyer — failure of proof — assignee of chose in action takes subject to equities existing against assignor. The plaintiffs alleged that they had advanced large sums of money to B, the payment of which was secured by the pledge of goods owned by B, and that the plaintiffs allowed B to sell the pledged goods upon the condition that every purchaser be notified of the plaintiffs’ interest or lien thereon; that at the time when B was largely indebted to the plaintiffs goods were shipped and delivered to the defendants who accepted and retained the same with full notice that the bills therefor were payable to the plaintiffs, and that by reason of the premises the defendants had promised and agreed to pay the plaintiffs the balance unpaid on the goods. The answer was a general denial, with a counterclaim for damages for non-delivery by B existing prior to the acquirement of any rights by the plaintiffs. On trial the plaintiffs failed to prove any indebtedness owing by B and made no attempt to establish any lien, but took the position of assignee of B’s claim against the defendants. Held, that the plaintiffs had failed to prove a cause of action; That, having alleged the pledge of the goods as collateral security and their lien thereon they were only entitled to assert their lien against the defendants upon proof of an existing indebtedness; That if the plaintiffs were assignees of a chose in action, it was error to exclude proof of the defendants’ claim against the assignor prior to the notice of assignment. Appeal by the defendants, John H. Giles and others, copartners, , etc., from a judgment of the Supreme Court in favor of the plaintiffs, entered in the office of the clerk of the county of "Few York on the 19th day of March, 1906, upon the verdict of a jury rendered by direction of the court after a trial at the Few York Trial Term. Edward P. White, for the appellants. J. Markham Marshall of counsel [Underwood, Van Vorst & Hoyt, attorneys], for the respondents. [MAJORITY — Clarke, J.:] Clarke, J.: The complaint alleges that the plaintiffs are bankers in the city of New York and the defendants cotton.manufacturers, at Amsterdam, 1ST. Y.; that plaintiffs agreed with the J. Freeman Brown Company, a mercantile and trading corporation, to make loans and advances to it from time to time, to be secured by the hypothecation arid pledge, among other things, of merchandise and the proceeds of the sale thereof, and the said -company- agreed always to keep and maintain a margin of at least ten per cent between the Value of the merchandise and other securities hypothecated and pledged by it as aforesaid, and the amount of its indebtedness, at any time to the plaintiffs; that .it was also a part of the said agreement and the regular course of dealing between the plaintiffs and said Brown Company for the plaintiffs, to authorize, and permit the said Brown Company to deliver, from time to time, to purchasers and customers of its own the merchandise hypothecated and pledged to the plaintiffs under the said agreement, but that the plaintiffs consented to such delivery and the relinquishment of their right to the possession of the said merchandise upon the sole condition that every purchaser from the said Brown Company receiving merchandise previously hypothecated and ¡fledged to the plaintiffs should be given notice at or about the time of the receipt thereof that the plaintiffs had an interest therein or lien thereon, and that the money due therefor was payable only to the plaintiffs ; that under and in pursuance of the said-agreement, large loans and advances were made ■ by the plaintiffs to the said Brown Company prior to its bankruptcy on December Y, 1903; that at the time of the tiling of the petition in bankruptcy, the Brown Company was indebted to the plaintiffs in an -amount largely in excess of the merchandise and other securities held by them as security for said indebtedness, and that there was included in the merchandise hypothecated and pledged to the plaintiffs all the cotton yarn the subject of this suit:; that the cotton yarn and each shipment thereof was delivered to the defendants and accepted and retained by them with full notice- that the bills therefor were payable to the plaintiffs herein. “ That by reason of the premises, the defendants have promised and agreed to pay to the plaintiffs the balance remaining unpaid on said cotton yarn,” . ■ The answer was substantially a general denial and, by way of offset, a counterclaim consisting of an accrued demand for damages for non-delivery against said Brown Company, existing prior to the accpiirement of any rights by the plaintiffs. The facts which were established were, that the plaintiffs were bankers in New York city, and the defendants were manufacturers of cotton fabrics at Amsterdam, N. Y. The-James Freeman Brown Company was a corporation located in New York city, doing business as selling agents for mills manufacturing cotton yarns. The defendants bought yarns from the Brown Company at various times from Juñe 15 to November 4, 1903, amounting to about $12,000, of which about $4,000 remained unpaid in January, 1904. The Brown Company, after each of such purchases had been made and the yarn shipped, prepared a bill thereof and mailed it to the defendants. Each of those bills was headed, “ Detailed invoice of merchandise. . Bought of James Freeman Brown Co., Mill Selling Agents Cotton Fabrics & Yarns,” and contained, a red ink stamp: “ This bill is payable' to Ladenburg, Thalmann & Co., 25 Broad St., New York. Make check payable to order of Ladenburg, Thalmann & Co., and mail direct.” .These bills or invoices also set forth the terms to be cash, less two per cent on the tenth of the following month, or net in sixty days from said date. The goods were “ shipped to Amsterdam, N. Y.,” and the “ goods at buyer’s risk when shipped.” The Brown Company also made out in duplicate corresponding bills on the billheads of the plaintiffs and sent them to the plaintiffs, who kept and filed the duplicates and mailed • the original ‘ bills to the defendants. These bills were headed, “ To Ladenburg, Thalmann & Co., Dr., 25 Broad Street. For merchandise delivered by James Freeman Brown Co., Mill Selling Agents Cotton Fabrics & Yams;” and also contained the same terms and statements as to the goods being shipped at purchaser’s risk to Amsterdam, N. Y., and the notice to make all remittances to the plaintiffs. 'Many of the goods were shipped from the south ; others 'from New York. They arrived in Amsterdam usually from two to eight weeks after shipment. The goods in suit were received by the defendants and were accepted and used" by them. The defendants have not paid the plaintiffs or the Brown Company or anybody therefor. x There is no evidence of the matters following, although set up in the complaint: The terms. of the agreement between the Brown Company and-plaintiffs, or that defendants knew of the terms of that agreement; that plaintiffs had made loans and advances to'said company; that the ten .per cent margin had ever existed or was exhausted; that there was any indebtedness of the Brown Company to the plaintiffs, or the amount thereof. The plaintiffs now say these, allegations of the complaint were mere surplusage. The defendants were not permitted to prove their counterclaim against the Brown Company as ah offset'. It did appear that the trustee in bankruptcy of the Brown Company had a- controversy with the plaintiffs, and that he had made inquiries of the defendants-as to the relations that existed between defendants and plaintiffs in this ■transaction. - A verdict for the plaintiffs was directed by the court upon the ground that the receipt and .retention by the defendants of the goods shipped to them by the James Freeman Brown Company, with1 the kriowledge that' the bills therefol were payable to Ladenburg, Thaimann & Co. created an implied promise upon their part to pay the value of the. goods to the plaintiffs. The plaintiffs upon the trial relied upon Thalmann v. Capron Knitting Co. (100 App. Div. 247 ; affd., 182 N. Y. 525). In that case, qn a demurrer .to the complaint, this court held that the complaint, which was substantially similar to the one at bar, with a significant exception that it contained the allegation “ that the aforesaid cotton yarn and cloth was delivered'to the ■ defendants and accepted and retained by them with notice that the plaintiffs had a lien thereon or interest therein, and that the amount due therefor was payable only to the plaintiffs,” stated a cause of action. “ It. shows that the plaintiffs abandoned their lien b^ allowing the goods to be delivered to the defendants, who accepted them with notieeund knowledge that the plaintiffs were entitled to the money to be paid therefor. The basis of the claim is an implied promise of the' defendant to pay.” But upon demurrer all the facts alleged are admitted to be true. An agreement was alleged, a course of business dealing was set forth, the advancement of moneys upon the security of merchandise, the preservation Of a margin, .an' existing indebtedness, a pledge of the specific goods, a lien thereon and acceptance by the defendant of the goods, with knowledge of the lien. ' Those facts being admitted, this court held that a cause of action was stated. Ho one of those facts is here proved, and a lien is not even alleged. There was a failure of proof, an abandonment of the complaint, and an entirely different question presented from that in the Capron Knitting Co. Case (supra). Upon the proof here, it seems to me there is, at best, a mere equitable assignment of a chose in action. Under such circumstances, the defendants had a right to prove their counterclaim as against the Brown Company. It wras also incumbent upon - the plaintiffs to prove, the amount of the existing indebtedness to them from the Brown Company because, having alleged collateral security, they had first to prove an. existing indebtedness before they could collect upon the collateral security. ■ The plaintiffs, abandoning the theory of their complaint, seem to rely, though nowhere alleging it, upon-a direct transaction between themselves and the defendants — a sale to the defendants by plaintiffs of the goods. There is one letter in the case which would seen to destroy this theory. Exhibit M, from plaintiffs to the defendants, expressly says: “We note what you say in respect to non-delivery of goods and would briefly state our position in the matter. We were not and ate not parties to the sale of merchandise, but have been simply bankers, having made advances to the James Freeman Brown Co. against accounts receivable assigned to us by them.” But they nowhere proved this. The learned trial judge, however, seems to have adopted this new theory, for he said: “ The goods were shipped directly by the plaintiffs, or they find their way — the goods of the plaintiffs, put it that way, no matter how you may have obtained title to them, the goods of the plaintiffs find their way into the possession of the defendants, and they accepted them and retained possession of them. They received bills for them, made out to them in the name of the plaintiffs." How taking' all these circumstances into consideration, the law in my opinion assumes, in the absence of proof of course to the contrary, that there was a promise on the part of the defendants to pay for the goods.” But the complaint does not allege that they were the goods of the plaintiffs, and the above letter destroys any such claim, The direction of a verdict for plaintiffs was error, and the judgment entered thereon must be reversed and a new trial ordered, with costs to the appellants to abide the event. Patterson, P. J., Ingraham, McLaughlin and Laughlin, J*J., concurred. Judgment reversed.and new trial ordered, with costs to appellants to abide event. Order .filed.