
    Theodore H. Morris et al., Respondents, v. The North American Mercantile Agency Co., Appellant.
    [Supreme Court, Appellate Term,
    April, 1907.)
    Principal and agent — Mutual rights, duties and liabilities: Construction and execution of contract and powers of agent — Fraud of sub-agent or employees of agent; Remedies as between the parties — Actions against agent for property or account — Defenses in general.
    Where a mercantile agency company having a claim to collect receives the debtor’s checks therefor payable to the order of the creditor and one of the company’s agents forges the creditor’s indorsements and deposits the checks with a trust company which collects them and turns over the proceeds to the depositor; and where the creditor thereafter sues the trust company and compromises its claim for less than the full amount and then sues the mercantile agency the latter cannot set up as a defense a release, given by the plaintiff to the trust company upon the compromise of the suit against it, which was expressed to be without prejudice to plaintiff’s claim against the mercantile agency.
    Such a release does not impair any remedy which the mercantile agency may have against the trust company.
    Appeal "by defendant from an interlocutory judgment made at a Special Term of the City Court of the city of New York, sustaining a demurrer to the second defense contained in the supplemental answer.
    Porter & Barnes (Louis H. Porter, of counsel), for appellant.
    0. Andrade, Jr. (Francis M. Applegate, of counsel), for respondents.
   Erlanger, J.

To a complaint charging conversion the defendant pleads that, when it received from plaintiffs the account against the West Machine Works of this city for six hundred and forty dollars, for collection, it turned it over to one Frank T. Okell, one of its employees, to make the collection, and that such employee received from the debtor, the West Machine Works, four checks in varying amounts to make up the full amount of the debt; that each of said cheeks was drawn to the order of plaintiffs, under their firm name of Morris, Wheeler & Co., and that said employee wrongfully, and without its or plaintiffs’ authority, endorsed all of said checks by forging plaintiffs’ name and depositing them to his individual credit with the Colonial Trust Company, and that the latter collected the whole of the six hundred and forty dollars, and paid the same to said Okell; that subsequently plaintiffs demanded of the Trust Company the said amount, and, failing to receive it, brought an action against said Trust Company to recover the same; that afterwards the action was settled and plaintiffs were paid by the bank four hundred and forty-three and twenty-one-hundredths dollars, and they executed to the Trust Company a general release which contained this reservation: This release to be without prejudice to the rights of Morris Wheeler & Oo. (plaintiffs) against j The North American Mercantile Agency Company (de-j fendant).” The release is set out at length in the! supplemental answer, by way of a “ Second Separate' and Complete Defense,” and the plaintiffs demurred thereto.' The demurrer was sustained, and the defendant appealed. While the defendant has urged upon us with much plausibility, that, if it is deprived of the defense conferred by the release, it will be remediless as against the Colonial Trust Company, we are not inclined to agree with the views so expressed. When the account was sent to the defendant for collection it had the same effect as if it had been a note or draft, and the defendant occupied the same relation to plaintiffs as a collecting bank usually holds; and, therefore, when plaintiffs discovered that their fund had been diverted from its proper source they had the right to follow the same in whosesoever hands it might be found. Bank of Clarke County v. Gilman, 81 Hun, 486, affd.152 N. Y. 634; Bank of America v. Waydell, 103 App. Div. 25; Salen v. Bank of State of New York, 110 id. 636. The funds were traced into the hands of the Colonial Trust Company, and a compromise was effected followed by the execution of the release. If the liability of the defendant to plaintiffs was contractual and joint with the Colonial Trust Company, the right to make the compromise without releasing the defendant is undoubted under section 1942 of the Code of Civil Procedure. On the other hand, if the liability rests in tort the release of one joint tort feasor, where a right to proceed against others is preserved, has the effect of a covenant not to further proceed against the one released, but preserves the liability as against the one expressly exempted from its provisions. Gilbert v. Finch, 173 N. Y. 455-466. The defendant is a stranger to the release and is not affected by it. Its right to proceed against the Trust Company that received the avails of the checks is coextensive with that of plaintiffs; and, if the Trust Company paid only á part of the claim, and the defendant shall be obliged to pay the residue, it may proceed against the Trust Company to recover the balance of the fund not paid by it. This privilege does not necessarily mean a right to subrogation, nor indeed of contribution; but, as already seen, it arises from the very fact that the Trust Company received the funds unlawfully, and of this the defendant as collecting agent could no more be deprived than could the plaintiffs.

The judgment must be affirmed, with costs.

Gildersleeve and Giegerich, JJ., concur.

Judgment affirmed, with costs.  