
    Geffcken v. Slingerland & McFarland.
    G-., on the application of N"., agreed to discount a note made by S. & McF., for $1283 27, on being furnished with collaterals, being told at the time by N. that he wished to procure the discount for a friend who was not named, the friend being S. & McF.; and the latter thereupon delivered to N"., as such collateral, anote which they owned, for $2,000, made by R. and M., and N". delivered it to G., as such collateral, telling him that as the $2,000 note first matured, “to collect it and credit it in our account,” by our account meaning the account of a firm of which-N. was a member; and thereupon G. procured the note of $1283 27 to be discounted at bank, on the security of the note for $2,000 left with such bank as collateral, and the $2,000 note was paid at maturity. G. has no right, as against S. & McF., to use such moneys to take up another note made by N.’s film, then running to maturity, and which he had endorsed and procured to be discounted for such firm. Such a use and application of the proceeds of the $2,000 note would be a fraud on S. & McF. G. knowing, when he discounted the note for $1283 27, that N. was acting for a friend, knew that he was the agent of such friend, and that the $2,000 note was the property of the latter, and was furnished by him as security for the payment of the note to be discounted, or, at all events, he knew enough to put him on inquiry.
    
      The relative rights of G. and of S. & McE. are not affected by the fact that the latter paid at hank the $2000 note, pursuant to an arrangement between themselves and the makers of such note, by which the makers were to have a renewal for $1500 of its amount on payment of $500 in cash (the balance of it) to S. & McE., which balance such makers so paid to S. & McE., and gave them a renewal note for §1500. Hor are such relative rights varied by the farther fact, that S. & McE., before they paid the $2,000 note, were informed by N. “what had passed between him and G. in relation to it,” it not appearing that S. & McE. ever sanctioned or intended to sanction the application of the $2000 note to any other purpose than to pay or secure the note for $1283 2*7.
    
      Held, further, that the payment of the $2000 note, and the receipt and use of its proceeds by Gr., operated, as between him and S. & Me. E., as a payment of the note of $1283 21?, and made him their debtor for the difference; and, therefore, Gr. could not recover of S. & McE. the amount of the note for $1283 21 (that being the note on which this suit is brought), but that the latter were entitled to a judgment against him for the difference between the amount of such two notes, with interest, the right to such excess being set up as a counter-claim, on a proper allegation of the facts in that behalf.
    Judgment ordered accordingly.
    (Before Bosworth and Woodruff, J.J.)
    Heard, June 2d;
    decided, June 27th, 1857.
    This action comes before the Court, at General Term, on a verdict taken for the plaintiff, subject to the opinion of the Court. The plaintiff is Adolph Geffcken, and the defendants are William J. Slingerland and Luther W. McFarland, composing the firm of “ Slingerland & McFarland.” The action was tried before Ch. J. Oakley and a jury in April, 1856.
    The complaint avers the partnership of the defendants, and the making by them of a promissory note, of which the following is a copy:
    $1,283 27. New York, 15ih Dec. 1853.
    Six months after date, we promise to pay to the order of ourselves, twelve hundred and eighty-three 27-100 dollars, at the Mechanics’ Banking Association, value received.
    (Signed,)
    Slingerland & McFarland.
    That the defendants, before its maturity, endorsed it, and “ delivered the samethat the plaintiff “ is the lawful owner and holder of the said note for valuethat it is due and wholly unpaid; and prays judgment for its amount, with interest from its maturity.
    The answer denies that any sum is due on this note, and avers, that when the defendants delivered that note they delivered with it, as collateral security for .the same, another note, which they held and owned as endorsees, made by Ryder & Malony, for $2,000, dated February 20, 1854, at three months; and that the same were so taken by the plaintiff, with knowledge of the facts.
    That said collateral note was paid at maturity, and that the plaintiff was bound, after applying sufficient of the proceeds to satisfy the first note, to refund the balance to the defendants, and the answer makes a counter-claim therefor.
    The reply puts in issue the fact that the Ryder & Malony note was given merely as collateral, or that the plaintiff so received it, and avers that he received it from Gildemeister & Meustaedter as collateral for the payment of their note for $2,226 40, and for the note in suit, both of which he had endorsed and procured to be discounted for them; that the proceeds of the Ryder & Malony note were applied by him to the payment of the Grildemeister & Meustaedter note, winch he had been obliged to pay as endorser, without notice of any of the facts set up in the defendants’ answer.
    The printed case, after setting forth the evidence given and proceedings had at the trial, concludes thus:'
    “ The Court, by consent of the parties, ordered a verdict to be taken for the plaintiff for two thousand dollars, subject to the opinion of the Court upon the questions of law and fact, upon a case to be made and to be heard in the first instance at the general term, with liberty to the Court to turn the same into a special verdict for the defendants, and adjust the amount. Judgment to be suspended until the decision of the general term, and with liberty to either party to turn the case into a bill of exceptions.”
    When the case was moved at General Term, the Court, on opening the papers, suggested that it was not properly before the Court, as the disputed questions of fact had not been determined by the jury.
    But the counsel of both parties insisting that there was not, and could not be any dispute as to the facts proved; that, in reality, the case presented only questions of law, and expressing an earnest desire that it should be heard and decided, without subjecting the parties to. the delay and expense of another trial, the Court consented to hear it. The facts established by the evidence are as-follows, viz.:
    “ About the first of May, 1854, the defendants borrowed of the firm of Gildemeister & Ueustaedter the sum of one thousand dollars, to be returned in a week. Before the money became payable, the defendants applied to that firm to get a note discounted, and upon the suggestion of Gildemeister that he had a friend who could get a note discounted if defendants had any collateral security, the defendants placed in his hands the note now in suit, dated December 15, 1853, made by the defendants for $1,283 27, payable six months after date, to the order of. themselves (the defendants) and delivered to Gildemeister as collateral security for its payment a note for two thousand dollars, dated Eebruary 20th, 1854, at three months made by Ryder and Malony to the order of G. S. Mott, and by him endorsed to the defendants.
    Gildemeister took the note in suit to the plaintiff, and asked him to get it discounted, and told him that he wanted it for a friend, but without stating for whom.
    The plaintiff told Gildemeister in reply to the application that if he would get some collateral security, he, the plaintiff, would get the note discounted. Gildemeister then gave him the note in suit, and in accordance with the plaintiff’s requirement that he should “ get ” some collateral, gave him also the two thousand dollar note, made by Ryder and Malony, which he had received from the defendants, as collateral security for the note in suit.
    As the note of Ryder & Malony would become due before the other note matured, Gildemeister told the plaintiff to collect it and credit it in his account with Gildemeister & Heustaedter.
    The plaintiff then took the two notes to the Bank of the Republic and leíi the note in suit for discount with the Ryder & Malony note as collateral security, and it was discounted by the bank, on the 12th day of May, and the proceeds were paid over to Gildemeister.
    On the 23d day of May (twenty-four days before the note in suit became due,) the $2000 note of Ryder & Malony was paid at the Bank of the Republic, and the plaintiff drew a check for the money. It does not appear that at that time, or at the time the notes were delivered to the plaintiff, or at any intermediate time Gildemeister & Neustaedter owed the plaintiff in account anything. But in the previous April the plaintiff had procured a note of Gildemeister & Neustaedter for $2,226 46, to be discounted with his endorsement at the same bank, and that note would become payable on the 5th of June, then ensuing. On the day the $2,000 note was paid, or on the following day, May 24th, Gildemeister & Neustaedter failed; and on the 24th of May the plaintiff, by arrangement with the bank, took up the $2,226 46 note, although not yet due, applying -towards its payment the $2,000 paid in upon the note of Byder & Malony, and the note in suit not being paid at maturity the plaintiff has brought this action against the defendants to collect that also.
    It further appears that shortly before the note of Byder & Malony became due, they made an arrangement with the defendants for a partial renewal of this note, and they paid to the defendants five hundred dollars and gave a new note for fifteen hundred dollars, whereupon the defendants agreed that they would take up the $2,000 note and restore it to the makers. In pursuance of this arrangement the defendants, in fact, paid the two thousand dollar note at the Bank of the Bepublic when it became due, and before they did so one of the defendants “was informed by Mr. Gildemeister of what had passed between him and the plaintiff in relation to it.” But there is not in this or in anything else testified to, any satisfactory proof that the defendants ever sanctioned or intended to sanction the application of this note to any other purpose or indebtedness, except to the note now in suit.
    
      Jer. Larocque, for the plaintiff,
    moved for judgment on the verdict, and contended, 1. That the plaintiff having received the Byder and Malony note from Gildemeister and Neustaedter, with authority to collect and credit it in account, and having had no notice until long after he had applied its proceeds to the payment of the $2,226 40 note, of any equity in favor of the defendants, or that they had ever held the Byder & Malony note, had clearly the right to apply the proceeds of the Byder & Malony note as he did apply them.
    
      2. If Eyder & Malony had themselves paid their note at its maturity, the transaction would have been the same as if they had paid it to Gildemeister & Heustaedter, to whom Slingerland & McFarland had transferred it, and Gildemeister & Heustaedter had then paid over its amount to the plaintiff, in part payment of the $2,226 40 note.
    S. The Ryder & Malony note did not bear the name of the defendants in any form. Gildemeister & Heustaedter were its lawful holders by delivery from the defendants themselves, and with the right to collect it and transfer it. That was the intention of the transaction, as it matured before the note in suit. There is no question, therefore, in the case of a conversion of property, such as arose in the cases of Stalker v. McDonald, and Coddington v. Bay, cited by the defendants’ counsel.
    4. There was no mistake or ignorance of fact on the part of the defendants when they paid the Eyder & Malony note. On the contrary, it was with full notice from Gildemeister that Gildemeister & Heustaedter had delivered it to the plaintiff to collect and credit it in theiraccount. It was, therefore, a voluntarypayment by the defendants themselves; and the defendants, after having paid it, are not at liberty to contest the right of the plaintiff which they thereby admitted. (Clark v. Dutcher, 9 Cowen, 674, and cases cited; Oakley v. Crenshaw, 4 Cowen, 250; Walker v. Ames, 2 Cowen, 428; Sprague v. Birdsall, 2 Cowen, 419; Hogan v. Weyer, 5 Hill, 389.)
    5. Even if the payment of the Eyder & Malony note could be considered, pro tanto, as a payment of the note in suit, the defendants had no right of action against the plaintiff, after such voluntary payment, to recover the balance; and, having no right of action, cannot recover that balance by way of counter-claim.
    6. The plaintiff is entitled to judgment.
    
      Joshua M. Van Cott, for the defendants, argued the following points.
    I.—The note in suit was paid out of the proceeds of the collateral note, which matured first, (20 J. R. 646, Bay v. Coddington; 6 Hill, 93, Stalker v. McDonald; 2 Kernan, 313, Decker v. Mathews.) The plaintiff is not a bond fide holder of the collateral note, except to the extent of the principal note. II.—The doctrine of estoppel has no application to the case.—3 Kernan, 316,1 Greenl. Ev § 207; 8 Wendell, 483; 2 E. D. Smith’s R. 14; 4 Barbour, 495; 5 Denio, 154; 3 Hill. 219; 2 Kernan, 100. (1.) It was a condition of the discount of the principal note that the plaintiff should hold, and of course be paid, the collateral; and the bank had a clear right to have it paid.—(2.) As between plaintiff and defendants, the collateral was paid by its makers. They in fact paid it, a part in cash and part by a new note. The mode of doing it was of no consequence, and did not affect the original transaction or the rights of the parties to it.—HI. The plaintiff held the balance of the proceeds of the collateral note, subject to the order of the defendants; who, upon the principle of the first point, are entitled to recover it on their counter-claim. IY. Under the power reserved to the Court, judgment should be rendered for such balance, with interest and costs.
   By the Court. Woodruff, J.

If the General Term will suffer their duties to be so far extended that, by consent of the parties, they will assume to determine all questions of fact and law, their labors will not only be greatly complicated, but will embrace a class of duties which the law has devolved upon others. We are called upon, on this occasion, to review the evidence taken, at what it would be a misnomer to call a trial, and to find the facts which, in general, it is the duty of the jury to find, and then to decide the law applicable to those facts. And this we are to do without having the witnesses before us, or any opportunity to judge of their intelligence, or, from their manner, to estimate the degree of confidence which ought to be reposed in the language they use.

We have, nevertheless, addressed ourselves to the subject, and if we should err in our conclusions of fact, we should regret more deeply than we now do, that the facts were not determined by the jury, who were empannelled for that express purpose.

(The opinion, after recapitulating the facts as above stated, proceeds as follows:)

Although the plaintiff was not (on the 12th of Hay, 1854) informed of the names of the defendants, he knew that Gildemeister was acting in this matter as the agent of the friend for whom he desired to procure the discount, and he received the notes and procured the discount with that knowledge.

And although the agent, Gildemeister, told him, “as the $2,000 note of Ryder and Malony fell due before the other, to collect it and credit it in our account” (i. e. Gildemeister and Eeustaedter’s account), yet it does not appear that thi§ was for any other purpose than as security for the note so to be discounted. There was no express authority to apply the money which would be paid in, to any other indebtedness—nd other indebtedness then existed. As the note was made by third parties, who in due course of business might be expected to pay the note at its maturity, nothing was necessarily implied in this instruction but what it would be the plaintiff’s duty to do, and his right to do, if he retained possession of the two notes. And in view of the other testimony to the acts and admissions of the plaintiff, in relation to the notes in question, the just conclusion is, that he received and held the $2,000 note as collateral security for the note now in suit, and as security for that alone, and that ■ this was the actual understanding of the parties at the time. It was all that he required as a condition of getting the note discounted. It was all that there was any motive to offer him. It was all that Gildemeister could offer him, without practising what in judgment of law would be a fraud upon the. defendants. And the plaintiff having notice that Gildemeister was procuring the discount for a friend, knew, or had reason to know, that the securities offered belonged to the friend for whom he was acting, and he therefore knew that any application of the $2,000 note to any other debt would be a violation of the rights of such friend; at all events, there was enough to put him on enquiry.

The better conclusion is, that neither he nor Gildemeister contemplated any fraud; it is rather to be presumed that they did not; and the whole evidence, taken together, is not only in harmony with, but sustains the conclusion that the $2,000 note was received by him and held as collateral security for the note in suit, and for that only. He so treated it; he himself endorsed it with the term “ collateral.” He so used it, delivering it to the bank as security for the note in suit.

The conclusion is irresistible that the application of the proceeds of the $2,000 note to the note of Gildemeister and Ueustaedter, discounted the previous April, and not yet due, was an expedient resorted to by the plaintiff upon the failure of that firm to divert a security, held for a different purpose, to a use to which it was not designed, and to which he had no right to apply " it, and to which he knew he had no right to apply it.

If this conclusion rested upon otherwise nicely balanced testimony, it would be greatly strengthened by the suspicious manner, out of the usual course of business, in which it was done. Applying it to a note not due for some eleven days thereafter, as if apprehensive that the friend for whom the note in suit was discounted would seek to arrest the money in that stage of the transaction; for at that time the plaintiff had no reason to suppose that the note was not paid in due course by the Messrs. Ryder and Malony.

The $2,000 note belonged to the defendants. It was placed. by them in the hands of Gildemeister as security only for the note in suit. It was placed by Gildemeister in the plaintiff’s hands for that purpose.

Gildemeister had no authority to use it for any other purpose.

The plaintiff made no advance upon it except to procure the discount of the note now in suit.

If Gildemeister attempted to authorize the plaintiff to apply its proceeds to any other debt, it was a fraud upon the defendants, and the plaintiff could only hold it for the amount of his advances or liabilities incurred upon the faith thereof.

But in truth the'whole evidence does not warrant us in finding that Gildemeister ever agreed that it might be applied to any other debt, or that the plaintiff received it upon that understanding, or condition, or that the defendants sanctioned such an application of it.

It is strenuously insisted that the payment of the $2,000 note, by the defendants themselves, pursuant to their’ arrangement with Ryder and Malony, was a voluntary payment to the use of the plaintiff, which placed the whole of the money at his free disposal, to be applied, if he thought proper, to the note he had endorsed and procured to be discounted for Gildemeister and Neustaedter.

The payment ought not to be so regarded. It was according to the intention of the parties, when the note was delivered (as security for the note in suit), that it would and should be paid at maturity. It was according to the natural, usual, and regular course of business, that it should be so paid. The payment was in discharge of an express understanding with Ryder and Malony, that the defendants would pay it, and restore it to them. It was, therefore, their duty to pay it, as they did, without involving Ryder and Malony in any question or controversy on the subject.

The utmost that can reasonably be inferred from what may properly be regarded as a consent that the plaintiff credit the proceeds is, that he was to retain them until the note in suit became due. This is entirely consistent with the testimony of Grildemeister, and with the other evidence that the Ryder and Malony note was received by the plaintiff as collateral security for the note in suit only, and, when so understood, it was proper, and in accordance with an honorable regard to that understanding, for the defendants to pay in the money, as it was upon other grounds, above suggested, their duty to do.

It follows, from these views, that the plaintiff has not only been paid the amount of the note in suit, but he has also received the difference between the amount of that note, $1,288 27, and $2,000, which difference is the defendants’ money. This difference they demand, by way of counter-claim, in this action, and should be allowed to recover.

It seems to us, that under the view we have taken of the facts proved, there are no legal principles involved in regard to which there is doubt, or respecting which there was any difference between the counsel on the argument. It was rather the application of obvious and well settled rules, to the proofs, that was the subject of contention.

That, Grildemeister had no right to appropriate the note to his own debt, even if he attempted to do so, is quite clear, and that the plaintiff taking it in fraud of the defendants’ rights, could only claim to the extent of his advances upon the faith thereof, is not, since the case of Stalker v. McDonald, 6 Hill 93, open to discussion.

And, on the other hand, that money voluntarily paid to one who claims a right to receive it for his own use, and paid with knowledge of all the material facts, cannot be recovered back, is equally well settled. The cases cited by the plaintiff’s counsel are full to that effect.

But in our judgment the facts proved in this case do not admit of the application of this latter principle.

Our conclusion is, that the defendants should have judgment for the sum of §716 73, with, interest from the time of the application of the money, May 24th, 1854, with the costs of the suit.  