PADDON against WILLIAMS

PADDON against WILLIAMS. New York Superior Court; General Term, November, 1863. Parties.—Action by one in Whose Eame Another Person does Business.—Remedies oe the Latter. One in whose name a business is carried on by other persons, in order to protect it and their funds against their creditors, and upon a secret agreement that he shall in fact be only their clerk, must, as between himself and them and persons claiming under them, be regarded as having the legal title to property, or the proceeds of property, intrusted to him by third persons in the course of such business; and he may maintain an action to recover from the persons thus doing business in his' name wnatever they convert to their own use against his will. If they have any remedy against his claim that he is the owner 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 sums due them be first paid. 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 by John W. Paddon against Isaac Williams and William Menck, to recover the amount of ten bank checks, which the plaintiff 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 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 she 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 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 anything 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 Babbour and a jury, on the 12th day of November, 1862. It appeared 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. TJpon the opening of the defence, in answer to objections, the defendants’ counsel made the following offer of proof. “ We offer and desire to prove— “ 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 carried on by having the goods consigned to D. H. Berry & Co., and sold by them, and the proceeds of all sales deposited in the name of the plaintiff, John W. Paddon ; and that the business was so carried on for a considerable length of time. That then there was a pretended dissolution of partnership and an agreement between the same parties that the goods should be consigned to Paddon, and that the business should be 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 & Co., -in fact, 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, 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, and that this debt was for the capital which Mr. Williams put into the business.” The court held that the facts constibuted no defence, 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 defendants, appellants* William M. Evarts, for plaintiff, respondent. [MAJORITY — By the Court.—Bosworth, Ch. J.] By the Court.—Bosworth, Ch. J. J.—Bo authority is cited by either counsel, in support of any proposition argued on this appeal. The plaintiff was possessed of ten checks, payable to Ms 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 cheeks, this action is brought to recover their amount. It was not contended on the argument that Menck has any defence, unless Williams has. It is quite clear on the evidence that Menck has no rights superior to those wMch Williams had. Clark testifies that on the 7th of March, “ Mr. Menck stated that Mr. Williams had come to him before taking the cheeks, asking what he should do.” It was also testified that Menck said to the plaintiff in the interview, when the cheeks 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 up.” That 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 defence. The defence 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 I). 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 miens, 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 the 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 & Go. 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. to take the proceeds of property thus consigned, and dispose of it as their own. Nine of these checks are for the price of property consigned by third persona to Paddon for sale, and sold by him pursuant to such consignments. By virtue of the contract between Paddon and these persons, the legal title to the consigned property, as against all third persons, was vested in Pacldbn, and the proceeds were his. As between the. con. signors, Paddon, D. 1-1. Berry & Co., 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 & Co. 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 equitable 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 Paddon In respect 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 redeem 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, includ- “ ihg 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 and profits and proceeds of the “ business, and that that understanding was in operation when • Mr. Williams took the checks 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., 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, require a court, in a case like this, to hold that Williams has no right to claim any part of the property against the consent of Pack! on, 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, and the sums due them be first paid. The judgment should be affirmed. Present, Boswobth, Ch. J., and White and Monell, JJ.