The Bowling Green Savings Bank, of the city of New York, vs. Todd and others

The Bowling Green Savings Bank, of the city of New York, vs. Todd and others. On a motion by the receiver of a bank, against partners, to compel the payment of moneys in their hands which they have collected as attorneys for the . bank, or for the receiver after his appointment, one of the partners cannot set off a claim due to him individually, from the bank. Nor has he any lien upon the papers on which a foreclosure suit is brought by the firm of which he is a member, or upon the moneys which are the result of that suit, to secure the payment of his individual claim. Where, after the commencement of a foreclosure suit, in the name of a bank, by its attorneys, a receiver of the bank is appointed, such appointment vests in the receiver the title to the mortgage, free from any right of set-off by the attorneys, of a claim for their services in such action. And if, upon a sale of the mortgaged premises, the proceeds come into the hands of the attorneys, they are received for the receiver, and not for the bank; and debts due from the bank cannot be interposed against the receiver’s title to such proceeds. Attorneys, in whose hands a bond and mortgage are placed, by a bank, for collection, acquire a lien thereon, for any moneys due to them for services rendered to the bank; which lien will not be defeated by the subsequent appointment of a receiver of the bank. An attorney has a lien upon all deeds and papers in his hands belonging to his client; and until he is paid, the court will not order them to be given up. Although most of the cases in which this lien is recognized are cases where the claim was for costs of that particular action in which the motion was made, yet the rule is equally well settled as to any claim which the attorney has, for his services, and attaches as well to the proceeds of a judgment as to the papers on which the judgment was founded. APPEAL from an order made at a Special Term, by which it was ordered that Henry J. Cullen, Jr., and John T. McGowan, Esqs., copartners composing the law firm of Cullen & McGowan, attorneys for the plaintiff in the above entitled action, pay over to Shepherd F. Knapp, receiver of said plaintiff, the sum of $1,118.08, with interest and costs of motion, within ten days from the service of the order, or that a non-bailable attachment issue against them. This order was made under the following circumstances: Cullen & McGowan were retained by the plaintiff to foreclose a mortgage belonging to it, and the above entitled action was begun to effect the foreclosure, judgment for which was entered on the 8th day of November, 1871. Under the judgment the mortgaged premises were sold, on the 1st day of December, 1871, and the sale completed on the 26th of March, 1872; Cullen & McGowan, on the 20th of June, 1872, receiving, on account of the moneys due on said mortgage over and above costs and allowance to them, $16,788.07, of which they paid to the aforesaid receiver the sum of $15,000 on the 29th day of June, 1872, and no more. The whole amount due on the mortgage on the day of sale was $16,954.05, so that there was a deficiency. The balance received by Cullen & McGowan, over the $15,000, to wit, $1,788.07, less $660.09, reserved by them to abide decision in regard to an assessment on the mortgaged premises, was demanded of them by the receiver, but they refused to pay the same, claiming that they were entitled to retain such balance in payment of indebtedness; first, of $1,400.31 to John T. McGowan, one of the firm of Cullen & McGowan; and second, of $608.17 to Cullen & McGowan, both due prior to October, 1871, less $930, due by Mr. McGowan personally to the bank. Shepherd F. Knapp was appointed receiver of the Bowling Green Savings Bank, on the 20th day of November, 1871, and all the property and assets of the bank vested in him by order entered on that day; and by judgment of the Supreme Court of 16th January, 1872, he was continued such receiver with full powers and vested as aforesaid. Of this Cullen & McGowan were aware, and were continued by Mr. Knapp, as attorneys for him as receiver to carry on the foreclosure suit to a termination. On affidavit setting forth these facts the order appealed from was made. Thomas C. T. Buckley, for the appellants. I. The application by Cullen & McGowan of a sufficient portion of the moneys then in their hands in extinguishing the debt due them from the bank was proper, and it will be sustained. The debt due from them to the bank, and the debt due from the bank to them, constituted a case of mutual credit. Independent of the statutes, courts of equity grant relief where there is a mutual credit. Wherever one party, being indebted to the other, intrusts Mm with goods, it is a case of mutual credit. And this applies as well where there is a legal debt on one side and an equitable debt on the other. (Story’s Equity, §§ 1435-1437.) See Rose v. Hart, (2 Smith’s Lead. Cas. 538:) “The policy of allowing a set-off between moneys due to and from a bankrupt’s estate, is * * * to prevent one man’s debt from being paid with another man’s money, wMch would be the case if a man, being at once debtor and creditor, were forced to pay the whole of Ms debt to the bankrupt and receive only a dividend.” (Barber v. Spencer, 11 Paige Ch. 517. Myers v. Davis, 22 N. Y. 491, 493.) In Smith v. Felton, (43 id. 419,) Allen, J., reviews the whole doctrine. “He says; “ It is enough that justice and equity demand that the debts should be set off against each other rather than that the defendants should be made to pay the note and left to rely upon the estate of an insolvent debtor for the payment of the debt due them.” See also Matter of Jones v. Robinson, receiver, (26 Barb. 310;) Holbrook v. Recr. Am. F. Ins. Co., (6 Paige, 220;) Matter of Van Allen,-receiver of Bank of Albany, (37 Barb. 225;) Pignolet v. Geer, (19 Abb. 264;) Schieffelin v. Hawkins, (1 Daly, 289.) The provisions of the bankruptcy act ought so far to apply as to practically supersede all local statutes and decisions, where they conflict with its provisions, in regard to the distribution of a bankrupt’s estate. More especially where there is so little conflict. (Bankrupt Act, § 20.) “In cases of mutual debts or mutual credits' between the parties,' the accounts shall be stated, and one debt set off against the other, and the balance only shall be allowed or paid, but no set-off shall be allowed of a claim in its nature not provable against the estate. ’ ’ (Bump’s Bankruptcy, 365, 366, a, 5th ed. Catlen v. Foster, 3 Bankruptcy Reg. 134. S. C., 3 A. L. T. 134.) This is a case of mutual debt as well as mutual credit. (Story on Bailm. § 439.) This being a debt, all the law applicable to set-off establishes the appellants’ right to set-off. II. Cullen & McG-owan have a lien upon this money to the amount of the bank’s indebtedness to them for professional services. The peculiar relations of attorney and client create a stronger equity in favor of the set-off, as between the parties. The respondents had a lien on the papers for the amount of their entire claim. (Hughes v. Mayre, 3 T. R. 275. Howell v. Harding, 8 East, 362. 1 Wait’s Practice, pp. 246, 247, § 14.) Alter the collection of the money, it became a debt, but only for the balance due after deducting the amount due from the bank, and as against these parties they had a lien for the amount of their debt. (Re Paschal, 10 Wall. 483. Wolfe v. Lewis, 19 How. U. S. 28. See Grant’s case, 8 Abb. Pr. 357. 2 Kent’s Com. 853, 11th ed.) “ Attorneys * * have a general lien upon the papers of their - clients in their possession for the balance of their professional accounts.” “Two kinds of lien, one on the funds, the other on the papers.” “ The client cannot get back the papers without paying what is due, not only in respect to that business for which the papers were used, but for other business done by him. in his professional character.” (Story on Bailm. § 439. St. Johnv. Diefendorf 12 Wend. 261.) “Has no lien upon moneys unless they are in his possession.” “Lien of attorneys on papers, for whatever sum is due them, will be preserved.” (Hazlett v. Gill, 5 Rob. 611. See Hoffman v. Van Nostrand, 14 Abb. Pr. 336; Fox v. Fox, 24, How. 409; Hall v. Ayer, 19 id. 91; 9 Abb. 220. Ackerman v. Ackerman, 14 id. 229; Ely v. Cooke, 9 Abb. Pr. 366.) Most of the cases above cited on the subject of set-off, show the relations of the receiver, assignee or trustee, to the debtor and creditor, to be the same as the insolvent would occupy. (See Schieffelin v. Hawkins, 1 Daly, 289, 291.) If there is a conflict on this subject, it is settled by the bankruptcy act above cited. III. The check was given in pursuance of a settlement agreed upon, and so received, and the receiver is bound by the act of his attorney, who, under the circumstances, is estopped from disclaiming his authority. He should have returned the check as well as the statement and his denial of right to settle. The facts show that the receiver has been settled with. John E. Develin, for Shepherd Knapp, receiver, respondent. I. By the order for his appointment the receiver became vested with all the property and assets of the bank, including the bond and mortgage under foreclosure, and the foreclosure suit itself. Thus the interest in the suit was transferred to the receiver, and he became the real party plaintiff, although it was continued in the name of the original party plaintiff, as is authorized by section 121 of the Code of Procedure. (Haxtun v. Bishop, 3 Wend. 13.) II. The property and assets of the iiank were vested in Mr. Knapp, for the creditors of the bank; so that he was prosecuting this suit for their benefit. (Gillet v. Moody, 3 N. Y. 479. Haxtun v. Bishop, supra. Porter v. Williams, 5 Seld. 142.) III. The money received by Messrs, Cullen & McGowan was received after the insolvency of the bank had been declared, and not for the bank, but for the receiver, and they received it as his attorneys, i. e., as Ms agents. He is therefore entitled to it as of original right; a promise to pay it over direct to him having arisen on its receipt by the attorneys, for wMch an action would lie against them in his own name. In tMs it differs from a claim by the bank against them, had such existed at the time of his appointment. (Lillie v. Hoyt, 5 Hill, 395. Stage v. Stevens, 1 Denio, 267, Mercein v. Smith, 2 Hill, 210.) IV. The claim of the receiver is against Messrs. Cullen & McGowan, as partners, a joint claim, whilst the $1,400.13, part of the sum wMch Cullen & McGowan assume the right to withhold, does not represent a debt of the bank to them jointly, but was a debt to Mr. McGowan individually and alone. Of course, tMs amount cannot in any way be used by the joint debtors, as an offset, or made by them a subject of deduction from the claim against Cullen & McGowan, jointly. (Plets v. Johnson, 3 Hill, 112. Dale et al. v. Cooke, 4 John. Ch. 11.) V. Nor can Cullen & McGowan, as partners, offset or deduct from the amount received by them after the insolvency, judicially declared, of the bank, the amount owing, and due them at the time of such insolvency. 1. The receiver represents the creditors, (Haxtun v. Bishop, 3 Wend. 13; Porter v. Williams, 5 Seld. 142,) and Cullen & McGowan having no claim against them, can have no offset against their money. (Osgood v. Ogden, 4 Keyes, 70.) 2, This sum was not paid to'them for the bank, which had ceased to do business, but for the receiver, the representative of the creditors. 3. If the court were to allow this deduction by Cullen & McGowan, from the amount of their indebtedness to the receiver, which indebtedness did not exist at the time of the dissolution of the bank, but came into existence after the appointment of the receiver, the object of his appointment might be, pro tanto, frustrated. This .object was' to divide the assets of the bank, ratably among its creditors; permitting this deduction would pay Cullen & McGowan in full, whilst other creditors might receive only a small percentage of their claims, thus disturbing the order of distribution, which the law will not permit. (Dale v. Cooke, 4 John. Ch. 11. Fry v. Evans, 8 Wend. 530. Mercein v. Smith, 2 Hill, 210.) 4. Cullen & McGowan have no claim against the receiver, but only in common with all the other' creditors of the bank, against the fund in his hands for distribution, and to that they must look for payment; were they to sue and recover judgment against the receiver, they would not thereby gain any preference over any other creditor, but would be confined to a distributive share with the other creditors. A judgment would merely define the amount owing them. VI. There was nothing upon which Cullen & McGowan had, as attorneys, a lien. They had received their costs and allowance; the mortgage was merged in the judgment of foreclosure, and it had expended itself by the sale. VII. The court will grant an attachment to enforce payment Tby an attorney receiving money which he refuses to pay over to his client after demand. (The People v. Wilson, 5 John. 368. Stage v. Stevens, 1 Denio, 267.) [MAJORITY — By the Court, Ingraham, P. J.] By the Court, Ingraham, P. J. The Bowling Green Savings Bank employed Mr. McGowan as attorney and counsel, to do business for the bank, and an account for $1,400.31, is claimed as due to him therefor. A similar account, for like services, is claimed to be due to Cullen & McGowan. The bank employed the firm to foreclose a mortgage, and this action was commenced by them, therefor, and judgment of foreclosure ordered, ¡November 8, 1871. On the 20th of November, 1871, the bank being insolvent, a receiver was appointed. After the receiver had qualified, Cullen & McGowan received the amount of proceeds of sale. They claim a right to deduct from such proceeds the amount due to Cullen & McGowan, and the amount due to McGowan individually, and have paid over the balance. The receiver moved, at Chambers, for an order directing the payment of the balance that had been deducted; which motion was granted. The attorneys appeal from that order. So far as it was proposed to include, in the settlement of this claim, the amount of the deposit in the bank, $49.50, or the amount due by McGowan upon the note on which he was indorser, or the amount McGowan owed on the draft drawn by him on the bank, it was erroneous. These items are improperly claimed or allowed, and must be adjusted between McGowan and the bank. And the same principle applies to the claim of McGowan for services rendered by him to the bank, amounting to $1,400.31. The claims of McGowan against the bank may form a set-off to the claims of the bank upon the note and draft; but with that we have nothing to do, on this motion. The bank has no remedy to collect the amount so claimed to be due to it, except by actionand McGowan has no right to offset a claim due to him individually, against the right oí the receiver to collect from Cullen & McGowan moneys in their hands, collected by them as attorneys for the bank. So far as the claim of McGowan is sought to be deducted, it is enough to say that it cannot be set off against moneys collected for the receiver, or after his appointment; and McGowan has no lien either on the papers on which this suit is brought, or the moneys which were the result of that suit, to secure the payment of his claim. The papers were deposited with Cullen & McGowan, and they alone can have any claim against the receiver. The real question, then, is, whether Cullen & McGowan have any right to set off their claim for services rendered after January 1,1871, $608.17, or have any lien upon the proceeds of the foreclosure, therefor. So far as they present their claim as a set-off, I think it cannot be allowed. When the receiver was appointed, no money had been received by them. Their claim could not' be set off against the mortgage; and the appointment of the receiver vested in him the title to the mortgage, free from such set-off. The subsequent receipt of the money by Cullen & McGowan was for the receiver, and not for the bank, and debts due from the bank could not be interposed against the receiver’s title. (12 Wend. 261.) But, although no set-off could be claimed, I am of the opinion that the attorneys acquired a lien on the bond and mortgage when placed in their hands for collection, for any moneys due to them for services rendered by them to the bank; which lien was not defeated by the. subsequent appointment of the receiver. An attorney has a lien upon all deeds and papers in his hands belonging to Ms client; and until he is paid, the court will not order them to be given up. (Hughes v. Mayre, 3 T. R. 275. Howell v. Harding, 8 East, 362. And such lien attaches to a judgment recovered, (4 T. R. 123; 6 id. 361,) and also on the money payable to the client thereunder. (1 East, 464.) Johnson, J., in Shackcleton v. Hart, 2 How. 39,) says: “The lien extends not only to the judgment, but to ah the securities lor its payment and satisfaction in the hands of the client; and the latter could no more be released or discharged to the prejudice of the attorney’s lien than the former.” [First Department, General Term, at New York, November 4, 1872 Ingraham and Brady, Justices.] Most of the cases in which this lien is recognized, are cases where the claim was for costs of that particular action in which the motion was made. (5 Rob. 611. 14 Abb. 229, 336. 24 How. 409.) But the rule is equally well settled as to any claim which the attorney has for his services, and attaches as well to the proceeds of a judgment as to the papers on which the judgment was founded. To apply these rules to the present case, the account between the receiver and the attorney will be as follows, viz: Am’t received on sale, from referee, $16,788 07 Deduct claim of attorneys, $608.17 Am’t retained for assess’t, 660.09 Cash paid receiver, . . . 1,500.00 16,268 26 Balance due receiver,..... $519 81 Leaving all other acccounts to be adjusted by an action. The order appealed from should be modified by reducing the amount to be paid to the receiver to 519.81, and interest from demand by the receiver, July 16,1872.