128 Misc. 654 | N.Y. Sup. Ct. | 1926
One Rowntree, a man of questionable business antecedents, desiring to open a brokerage business under another’s name, made an arrangement with W. Scott Norris, by which Norris filed a certificate that he was doing business under the name of W. Scott Norris & Co., executed a deed of trust to the effect that all the property and assets of W. Scott Norris & Co. were the property of Rowntree and gave to Rowntree a complete general power of attorney. Rowntree thereupon opened a brokerage office, apparently engaged in general bucketing, diverted to his personal use moneys of the business and decamped. The creditors thereupon filed a petition in bankruptcy against W. Scott Norris & Co. and the plaintiff is the trustee in bankruptcy. The defendants are brokers trading upon the New York Stock Exchange and
The Cotton Exchange rules forbid a member to give “ continuous quotations to outsiders,” the phrase meaning quotations so continuous as to enable the outsider himself to conduct a brokerage v • business. In fact while frequent quotations were given to Rowntree, I do not believe they were continuous within the meaning of the rule, though in my view, as hereafter expressed, this conclusion will become immaterial. It is also clear that Searles called from time to time at the office of W. Scott Norris & Co. where Rowntree was located and saw Rowntree there. I find no evidence whatever from which to infer that prior to the notice from the Stock Exchange he knew or had reasonable ground to know that Rowntree had any fiduciary or other relationship with- W. Scott Norris & Co. It is most usual for professional traders to make their offices with brokerage firms and the mere presence of Rowntree in the office of W. Scott Norris & Co. was not sufficient to charge Searles with notice of any participation by Rowntree in the Norris business. This conclusion will also hereafter develop to be immaterial.
The plaintiff sues to recover the sum of $75,496.20, which is that portion of the amounts paid out to Rowntree by Williston & Co. which Rowntree did not deposit in the W. Scott Norris & Co. account but diverted to his own use; and, failing complete success in the assertion of this claim, asks judgment for the sum of $45,496.50, the amount paid to Rowntree upon the closing of the account. There are three causes of action which will be considered seriatim. The first two relate to the entire claim, the third relates only to the claim for $45,496.50.
The first cause of action is predicated substantially as the plaintiff’s brief states “on an actual consummated agreement to defraud the public, the bankrupt and his creditors by enabling
The second cause of action is upon the ground that Williston & Co. were chargeable with notice that Rowntree was transferring to them moneys in excess of authority received by him from the bankrupt and that, therefore, they are liable for the moneys returned to Rowntree and diverted by him. In support of this cause of action the plaintiff urges that the receipt by Williston & Co. of checks to their own order made by W. Scott Norris & Co. for the credit of Rowntree put them upon notice and charged them with the duty of seeing that these moneys were held for or returned to W. Scott Norris & Co. as distinguished from Rowntree. The long line of cases on this general subject has been recently digested and limited in the opinion of Cardozo, J., in Whiting v. Hudson Trust Co. (234 N. Y. 394). It is there held that a depositary is liable where it receives the check of a corporation from an officer either indorsed by him or drawn to him for his own account. Cognate lines of cases are also referred to and the opinion states: “ The cases imposing liability in such circumstances lay down, however, a strict and at times a harsh rule, and are not to be extended.”
Assuming that Williston & Co. here were placed upon inquiry by receiving checks signed by W. Scott Norris & Co. payable either to themselves or to Rowntree for Rowntree’s credit, inquiry
The third cause of action for $45,496.50 is predicated upon the claim that the payment upon the closing of the account by check to Rowntree made Williston & Co. participants in a transfer in fraud of the creditors of W. Scott Norris & Co. They were in fact but a mere conduit. It would not have made the slightest difference whether this check was drawn to Rowntree or to W. Scott Norris & Co. If Rowntree wished to divert it, he had the complete power to do so immediately upon the receipt of the check even if the check had been made to W. Scott Norris & Co. More-ever, even a fraudulent grantee relieves himself of liability if he returns the property to his fraudulent grantor under circumstances that fall short of making, him a party to a conspiracy to defraud. (2 Moore Fraudulent Conveyances, 681; Cramer v. Blood, 57 Barb. 155; affd., 48 N. Y. 684; Greason v. Holcomb, 131 App. Div. 868; affd., 196 N. Y. 571.) What the grantor thereafter does with the money is no concern of the grantee’s. (Armstrong v. American Exchange Nat. Bank, 133 U. S. 433,466.) While this authority does not deal directly with a fraudulent conveyance, it does deal with a situation similar to the one here presented in the respects hereafter noted. Here Williston owed this money to Rowntree. Shortly before the time of the repayment there is no credible evidence that Williston & Co. knew that the payment belonged to Norris & Co. or that Rowntree had been trading with the moneys of that firm or was connected with it. In the incurring of the debt, therefore, Williston & Co. were not at all coconspirators with Rowntree. The knowledge that they thereafter acquired was that Scott Norris & Co. was the same as Rowntree, who was doing
Verdict directed for the defendants.