
    Lucius B. Hutchinson, Respondent, v. The President, etc., of The Manhattan Co. et al., Appellants.
    (New York Superior Court — General Term,
    July, 1894.)
    A firm of bankers and brokers, to whom the plaintiff had indorsed a draft for collection, deposited the same with the defendant bank, which . refused to credit the brokers with the amount'of the draft and consented to receive it only for collection. Held, that defendant, had no right to credit the proceeds of the draft when collected upon an indebtedness to it of the brokers, who had in the meantime made a general assignment, and that plaintiff was entitled to recover the same.
    Appeal from judgment in favor of the plaintiff, entered upon the report of a referee.
    The following is the opinion of the referee :
    ■ Hamilton Odell, Ref. On May 4, 1893, the plaintiff was the owner and holder of a draft on the Packard National Bank of Greenfield, Massachusetts, for the sum of $2,400. He indorsed it, “ Pay to W. L. Patton & Co. or order,” and deposited it with that firm for collection, with instructions to. deposit it in the Manhattan Company (the defendants) “ for collection and for collection only.” Patton & Co. were bankers and brokers, and on the same day they indorsed the draft “ For deposit to the credit of W. L. Patton & Co.,” and deposited it in the defendant bank (where they kept an account) as directed by the plaintiff. The draft was forwarded by the defendants for collection to the Packard National Bank, and the proceeds thereof ($2,398.80) were received by them on May sixth. Patton & Co. were insolvent when they received the draft from the plaintiff, and on May fifth, the day after the transaction with the plaintiff, and the day before the receipt of the said proceeds by the defendant, they made a general assignment of all their property for the benefit of their creditors. They were indebted to the defendants upon two notes-—-one dated April 21, 1893, for $50,000, and the other dated May 5, 1893, for $297,500, and both payable on demand. By the terms of these notes the defendants were given a lien “ upon all the property or securities given unto or left in their possession by the undersigned (Patton & Co.), and also upon any balance of the deposit account of the undersigned with them; ” and the defendants were authorized and empowered “ at their option, at any time, to appropriate and apply to the payment and extinguishment of any of the above-named obligations or liabilities, whether now existing or hereafter contracted, any and all moneys now or hereafter in their hands, on deposit or otherwise, to the credit of or belonging to the undersigned, whether the said obligations or liabilities are then due or not due.” Assuming to act under this authority, the defendants, upon the receipt on May sixth of the proceeds of said draft, applied the same in part payment •of the said note for $297,500. The plaintiff claims that the said proceeds belong to him, and he has brought this action to ■compel the payment thereof to him by the defendants.
    It is well settled that if, upon the deposit of a bill with a bank, the bill is placed to the credit of the'depositor,'and he so acquires the right to draw against it, the title to the bill passes to the bank, and the bank may do with it or with its proceeds what it pleases. O lark v. Merchants1 Bank, 2 N. Y. 380; Metropolitan, Nat. Banle v. Loyd, 90 id. 530; Gragie v. Hadley, 99 id. 133. It is also settled by the same authorities that if the bill be deposited for collection only, the title remains in the depositor, and the bank holds the bill and its proceeds, when collected, simply as his agent. The same rule is declared in National, B. c& D. Bank v. Ilubbell, 117 N. Y. 393, and many other cases. Where the indorsement of the bill is general, without words of limitation, the presumption follows that it is the intention of the depositor to transfer the title, and the burden is upon him to show the contrary. 2 N. Y. 383. In the present case the indorsement of the draft to Patton & Co. was general, but the fact is proved, and is not disputed, that the delivery of the draft to them was for collection only. The title, therefore, remained in the plaintiff. Of course he, by the transaction, placed it in the power of Patton ■& Co. to transfer good title to the draft to a honafide purchaser for value, and if the defendant bank was such a purchaser judgment must go against the plaintiff.
    As I understand the facts, the bank was at no time the owner of the draft. It certainly was not a purchaser or holder of the draft for value. Patton & Co. indorsed it and offered it to the bank as an ordinary or cash deposit, but the bank refused to credit it to Patton & Co. in account, or to receive it except for collection. The bank received it and collected it as Patton & Co.’s agent. As such agent it held the proceeds of the draft on the sixth of May, the day following Patton & Co.’s assignment for the benefit of their creditors. By the terms of the notes referred to the bank had no lien upon the ■draft or upon its proceeds. Its lien was limited to the specific property delivered or pledged by Patton & Co. as security for their indebtedness to the bank and fo the balance of their deposit account. The words “ given unto or left in their possession ” will not stand the strain that is necessary to make them include paper not belonging to Patton & Co., and received by the bank for the purpose of collection, and it does not appear that the proceeds of the draft ever entered into Patton & Co.’s deposit account with the defendants. As to the authority given by the notes to the defendants, at their ■option, “ to appropriate and apply to the payment and extinguishment of any of the above-named obligations or liabilities, whether now existing or hereafter contracted, any and all moneys now or hereafter in their hands on deposit, or otherwise, to the credit of or belonging to the undersigned, whether1 the said obligations or liabilities are then due or not due,” it is sufficient to say that as to the moneys in question the defendants did not assume to exercise their option until after Patton & Co. had ceased to be even the apparent owners of said moneys by the transfer of all of their property to their assignee. As between the assignee and the bank the moneys belonged to the former. As between the assignee and the plaintiff they belonged to the latter. Under all the circumstances it seems plain to me that the defendants acquired no title to the proceeds of the draft by the act of crediting them as a partial payment on Patton & Co.’s note of the fifth of May. They parted with nothing on the faith of them, and did not become holders or owners for value within the rule as established in this state. Lyon v. Filch, 61 N. Y. Super. Ct. 74; Sixth National Ba/nk v. Lorillard Brick Works Co., Id. 29 ; McQuade v. Irwin, 39 id. 396; Scott v. Ocean Ba/nk, 5 Bosw. 192; 23 N. Y. 292 ; Moore v. Byder, 65 id. 438.
    The learned counsel for the defendant forcibly insists that the law of this case is settled in its favor by Charlotte Iron Works v. Americcm Exchange Ba/nk, 34 Hun, 26. There are strong points of similarity between that case and the present one. But the circumstance that seems to have controlled the judgment of the court was that the American Exchange Bank had simply received money, in the ordinary course of business, from a party who was its debtor, and without knowledge or notice “ of the source from which the said money was derived.” This was its only connection with the transactions which the case involved. The court stated the general rule to be that “ where the trustee or agent has converted the subject of his trust or agency into money and pays the same in the due course of business in discharge of his own indebtedness to one ignorant of the nature of his title, the payee acquires a perfect and indefeasible one as against the true owner. In such a case the right to follow the money by the principal is gone.” This rule is one of necessity. The reason for it is stated in Stephens v. Boiord of Education, 79 N. Y. 187. “It is absolutely necessary for practical business transactions that the payee of money in due course of business' shall not be put upon inquiry at his peril as to the title of the payor. * * * The law wisely, from considera^tions of public policy and convenience, and to give security and certainty to business transactions, adjudges that the possession of money vests the title in the holder as to third persons dealing with him and receiving it in due course of business and in good faith upon a valid consideration.” And it was held that receiving it upon an existing debt satisfied the rule. Now, it is plain that if, in the case cited, the American Exchange Bank had received the Dv/nning draft from the City Bank of Rochester, and had applied it in payment of the City Bank's indebtedness, a very different question would have been presented. For seventy years at least the law of the state has been that receiving negotiable paper as security for or in payment of a precedent debt without giving any new credit, or incurring any new responsibility, or relinquishing any security, is not taking it for value so that the transferee can hold it against, the rights or claims of the true owner. Goddington v. Bazy, 20 Johns. 637. If the transferee does not acquire good title to the paper, how can lie, by collecting it, acquire title to the proceeds f In such case the rule that “ money has no earmark ” does not apply. And what widely distinguishes the case in Hun from the case at bar is the fact that there the American Exchange Bank had nothing to do with the collection of the draft deposited with the City Bank by the Iron Works, but received from the Auburn Banka remittance of money to be placed to the credit of the City Bank, without knowledge of how the remittance had been produced.
    My opinion is that the plaintiff is entitled to judgment.
    
      Stern & Rushmore, for appellants.
    
      John L. Branch, for respondent.
   Per Curiam.

The check was drawn upon a Massachusetts-bank and deposited for collection by W. L. Patton & Co., who had undertaken its collection for the plaintiff. The check belonged to the plaintiff and the proceeds, when collected, were his. McBride v. Farmers' Bank, 26 N. Y. 450.

There is nothing in the recent case of The Goshen Bank v. State, 141 N. Y. 379; 36 N. E. Rep. 316, nor in Justh v. Bank, 56 N. Y. 478; Stephens v. Board, 79 id. 183, 187; Southwick v. Bank, 84 id. 420, 436, 437, which sustains the defendant’s contention that it had the right arbitrarily to credit the plaintiff’s money on the past-due obligations of W. L. Patton & Co. because that firm'was a depositor with it. In those cases both the party delivering and the one receiving the money or check acted with the avowed and understood purpose of discharging the pre-existing obligation, and their mutual intention having been effectuated by the necessary acts, the court held that the title passed and the money had been lawfully applied.

These controlling features are not only significantly absent here, but contrary intentions appear. The arbitrary application of the plaintiff’s money was not only repugnant to the trust upon which Patton & Co. and the defendant received the check, but contrary to the presumed intention of all the other parties in interest. There was no implied authority in the defendant to make the appropriation, and no equitable rule of conduct, estoppel or set-off which gave it title to the money of the plaintiff against the will of those having the jus disponendi, particularly where it appears, as it does here, that the defendant gave nothing for the money, and its former position will not be changed if required to give it up.

For these reasons, and those assigned by the learned referee, the judgment appealed from must be affirmed, with costs.

Present: Freedman, MoAdam and Gildersleeve, JJ.

Judgment affirmed, with costs.  