
    (31 Abb. N. C. 400.)
    BIENENSTOK et al. v. AMMIDOWN et al.
    (Superior Court of New York City, Special Term.
    May, 1894.)
    Partnership—When Chargeable with Facts Known to One Partner.
    An insolvent corporation purchased goods of plaintiff, with the intention of not paying for them. Defendant, as president of the corporation, borrowed money on the goods, as collateral security, and deposited the money to the credit of a firm of which he was a member, and to which the corporation was indebted. Held that, in depositing the money to the credit of the firm, defendant acted as a member thereof, and not as president of the corporation, and therefore the firm -was chargeable with notice of defendant’s knowledge of the fraud on plaintiff, and plaintiff could recover the amount of such deposit from the firm, under the rule that where the property of another has been wrongfully converted, and its identity can be traced, it may be recovered by the original owner.
    Action by Siegfried Bienenstok and others against Edward H. Ammidown and others.
    Judgment for plaintiffs.
    Blumenstiel & Hirsch, for plaintiffs.
    MacFarland & Parkin, for defendant Smith.
   McADAM, J.

The plaintiffs, wool dealers at St. Louis, Mo., in September, 1890, sold to a corporation known as the “Rittenhouse Manufacturing Company,” located at Passaic, N. J., a quantity of wool, aggregating in value about $34,888.17. The transaction on the part of the Rittenhouse Company was conducted by Mr. Gardner, its manager, through a firm of wool brokers, known as “Salter Bros.” Mr. Ammidown, one of the defendants, was president of the Rittenhouse Manufacturing Company, and at the same time senior member of the firm of Ammidown & Smith, composed of the defendants. Ammidown owned about 90 per cent, of the stock of the Rittenhouse Company, and had an interest to the extent of 60 per cent, in the firm of Ammidown & Smith. About the time the wool reached Passaic, Mr. Ammidown told Gardner that the wool must be sent to New York, and placed in warehouses; that times Avere hard, ready money tight and difficult to get; that the notes of the corporation could not be sold, and he would have to borroAv money on the wool for present use. For these reasons the wool was • not taken from the cars, but brought to New York, divided into three parcels, stored, and warehouse certificates procured in the name of the Rittenhouse Manufacturing Company. These three Avarehouse receipts were thereupon taken to the Bank of America and two other similar institutions, where the notes of the Rittenhouse Company, guarantied by Ammidown, and secured by these warehouse receipts, were discounted. The proceeds of the Bank of America discount, amounting to $9,200, were represented in a check drawn by that bank, indorsed first by Ammidown, then by his firm of Ammidown & Smith, and passed to their credit in their bank. Plaintiffs claim that their property was obtained by the Rittenhouse Manufacturing Company by means of a fraud, to which Ammidown was a party, and that, in consequence, they have the right to follow the proceeds of the $9,200 draft, representing part of their property, into the hands of the defendants. That the property was obtained by fraud may be safely inferred from the evidence. The Rittenhouse Company, at the time it bought the wool, was a corporation created by the laws of New Jersey, having a' capital of $200,000. Three months before the wool was purchased, the books of the corporation showed a deficiency of $329,000, and on December 2, 1890, it was behind to the extent of $555,000; so that it was hopelessly insolvent, without the slightest prospect of continuing business or of meeting its obligations. The wools purchased from the plaintiffs were evidently bought with, the preconceived design not to pay for them. The circumstances overcome every presumption of innocence. The embarrassed condition of the Bittenhouse Company and of Ammidown, and the use they made of the plaintiffs’ wools, show that the intention of paying for them was never for a moment entertained. Indeed, payment therefor was impossible.

In Durell v. Haley, 1 Paige, 492, Chancellor Walworth said: “If a purchaser who is insolvent conceals the fact from the vendor, and thus obtains goods without intending to pay for them, it is a fraud, and the property is not changed in the hands of the vendee.” The same doctrine is asserted in Ash v. Putnam, 1 Hill, 302; Buckley v. Artcher, 21 Barb. 585; Morrison v. Garner, 7 Abb. Pr. 425; De Voe v. Brandt, 53 N. Y. 462; Johnson v. Monell, 2 Abb. Dec. 470, 41 N. Y. 655; Wright v. Brown, 67 N. Y. 1; Anon., Id. 53S. It is sufficient if the intent exist at the time the goods are received, though subsequent to the sale. Whitten v. Fitzwater, 129 N. Y. 626, 29 N. E. 298. The combination of events is to be considered in determining the question. See Beardsley v. Duntley, 69 N. Y. 581; Hedges v. Payne (Sup.) 17 N. Y. Supp. 809; Abegg v. Schwab (Sup.) 9 N. Y. Supp. 681; White v. Benjamin, 3 Misc. Rep. 505, 506, 23 N. Y. Supp. 981. It is not necessary for the evidence to show beyond a reasonable doubt that a party is guilty of fraud; nothing more is required than that the evidence shall be sufficient to satisfy the conscience of a common man, although the evidence does not amount to absolute certainty. Bigelow, Frauds, 474, 475.

The Bittenhouse Company and Ammidown knew that the plaintiffs were supplying the wool, believing that it was to be used at the company’s mills; that it was needed there; and that they were doing, and likely to continue to do, a prosperous and paying business, and all intimation to the contrary was carefFilly suppressed. It must have been known that if the plaintiffs had the faintest idea of the hopeless insolvency of the Bittenhouse Company, or of Ammidown, they would not have parted with over $34,000 of their property; particularly if it had been suspected that, instead of using the wools at their mills for manufacturing purposes, in the usual course of business, the vendees intended, as soon as they received the wools, to put them in storage, with the sole object of raising their value in money for the benefit of others,—a course which destroyed all possibility of payment of the vendors. If the plan which was carried out. successfully was not preconceived, the result and consequences to the vendors were just the same; and, as between them and the vendees, the former might have rescinded the sale and reclaimed the property. Nichols v. Michael, 23 N. Y. at page 266. "Vide cases before cited. A bona fide purchaser from a fraudulent vendee will be protected, however. Ball v. Shell, 21 Wend. 222; Mowrey v. Walsh, 8 Cow. 238; Keyser v. Harbeck, 3 Duer, 373; Fassett v. Smith, 23 N. Y. 252; Paddon v. Taylor, 44 N. Y. 371. But it devolves upon the latter to establish that he is a bona fide purchaser, and that he has parted with value without notice of the fraudulent title of the person from whom he got the - property.

Porter v. Parks, 49 N. Y. 566; Stevens v. Brennan, 79 N. Y. 254; Dows v. Kidder, 84 N. Y. 121; Meacham v. Collignon, 7 Daly, 402; Mather v. Freelove, 3 N. Y. St. Rep. 424. A transfer as security for or in payment of a precedent debt will not make the transferee a bona fide purchaser within the rule. Stevens v. Brennan, and other cases, supra. Wherever the property of another has been wrongfully misapplied, or a trust fund has been wrongfully converted into-another species of property, if its identity can be traced, it will be held in its new form liable to the rights of the original owner. 2 Story, Eq. Jur. §§ 1258, 1265. Equity impresses a trust upon it in favor of the one equitably entitled to the same against any one receiving the fund but a purchaser in good faith and without notice. 2 Pom. Eq. Jur. §§ 1048, 1053; Perry, Trusts, § 166. The product or substitute for the original thing still follows the nature of the thing itself, so long as it can be ascertained to be such, and the right only ceases when the means of ascertainment fail. Taylor v. Plumer, 3 Maul. & S. 562; Gavin v. Gleason, 105 N. Y. 256, 11 N. E. 504; Bank v. King, 57 Pa. St. 202; Bank v. Insurance Co., 104 U. S. 69; Ferris v. Van Vechten, 73 N. Y. 113. Where the property has been converted into money, such proceeds may (with certain limitations hereinafter referred to) be followed just the same as the goods might have been. Dows v. Kidder, 84 N. Y. 121; Van Alen v. Bank, 52 N. Y. 1; Holmes v. Gilman, 138 N. Y. 369, 34 N. E. 205.

The Bank of America, in good faith and without notice, advanced upon the warehouse receipts $9,200, and to that extent acquired a valid lien thereon; and the question is whether the defendants herein acquired, as against the plaintiffs, any right to retain the proceeds, which went into their hands in the form of a check drawn by the bank, which was indorsed, first, by Ammidown, next, by his firm, and deposited to their credit in the Importers’ & Traders’' Bank. Up to the time the check was in Ammidown’s hands, as president of the Bittenhouse Company, and so long as it remained there, the proceeds could have been recovered from him by the plaintiffs. If the title of the firm of Ammidown & Smith is affected in like manner, there is no defense, and the decision of this question depends to a large extent upon whether the knowledge of Ammidown is to be imputed to his copartner Smith, and so to the firm of which he was a member; for, if it is, it becomes evident that that firm cannot receive the protection accorded to bona fide transferees of property. In this connection it must be conceded that where a party occupies a dual position, or numerous positions, such as president of one company, treasurer of another, secretary of a third, and member of a firm, the knowledge acquired in one capacity is not, as a rule4 imputable to the-other concerns to which such knowledge does not, by the position occupied, rightfully belong. Therefore, the knowledge that Ammidown acquired while acting as president of the Bittenhouse Manufacturing Company did not necessarily charge Smith, Ms copartner, who was in a legal sense a stranger to the Bittenhouse Manufacturing Company, and not bound to know the facts connected with its business. Ammidown was under no obligation to make these facts known to Smith, and it will not be inferred that he communicated them to him. But the transaction did not stand alone. Ammidown & Smith were the consignees •of the Rittenhouse Manufacturing Company, having an arrangement with it by which all its manufactured goods came to then-firm, under an agreement by which they were to advance 75 per cent, of the market value. These advances had been made from time to time, covering a period of years, going back as far as 1883. So that, at the time when the plaintiffs’ wools were received, the Rittenhouse Manufacturing Company owed Ammidown & Smith, for overdrafts on consignments, a sum aggregating about $276,000. Smith knew the financial condition of the Rittenhouse Company, und, indeed, had for a long time suspected its stability; so that he refused to have his firm make advances unless Ammidown person■ally guarantied every payment. This Ammidown did. Hence Smith was chargeable with the knowledge which his different relations to the transaction gave him, and to such as may be reasonably inferred from the action of the firm as such. True, Smith had no personal knowledge concerning the purchase, storage, or pledging of the plaintiffs’ wools; and, if the proceeds of the check from the Bank of America had not been passed to the firm’s credit, no liability would have attached to the defendants jointly. But Ammidown brought the check into the firm, and it was deposited to the firm’s credit. Did the firm by this act become chargeable with Ammidown’s knowledge of the transaction that put it there? In taking advantage of Ammidown’s act of bringing in the check, the firm of Ammidown & Smith took it impressed with his knowledge as to the source from which it came, even though such knowledge was not acquired in the course of his agency as a member of -the firm. Constant v. University of Rochester, 111 N. Y. 604, 19 N. E. 631. The defendants claim that paying in the check of the Bank of America was the official act of Ammidown, as the president of the Rittenhouse Company, and that the payment imputed no knowledge to his firm, further than the fact of payment. But Ammi■down did more; he acted for his firm in receiving the money and putting, it in the Importers’ & Traders’ Bank to its credit, and by this act he associated his firm with the transaction by making it the beneficiary thereof. It cannot be that the same person can, as a corporation president, commit a fraud on the public, and immediately thereafter, by his own act, give a firm of which he is a member the benefit of it, and in that simple manner make the fruits of the fraud safe from legal accountability. There must be •some well-defined boundary line drawn where the acts of the same person, in the same capacity, for legal purposes stop, and those in the other commence; where the doctrine of imputed knowledge in the new concern succeeds the actual knowledge gained in the ■former. It was at one time held that notice to the agent, in order to bind his principal by constructive notice, must be in the same transaction. But the court, in Constant v. University of Rochester, •supra, held that the rule should not be so limited, when clear proof is made that the knowledge or notice “was present in the mind of the agent at the time of the transaction in question.” The wools were purchased on September 10th. They were put in the warehouses on September 24th, were pledged September 26th, and on the same day the money was turned over to his firm by Ammidown; so that, under the test applied in the Constant Case, the details of the entire transaction were present in Ammidown’s mind when his firm became a party to it. Ammidown was the senior member' of the firm, directing its affairs and controlling its course, and held out by the firm as worthy of confidence. There are equitable reasons, therefore, why the rule as to imputed knowledge should be applied to the defendants’ firm in furtherance of justice. In Holden v. Bank, 72 N. Y. 286, it was held that where the agency was continuous, and made up of a long series of transactions of the same general character, knowledge acquired by the agent in one or more of the transactions is notice to the agent and the principal, which will affect the latter in any other transaction in which the agent, as such, is engaged, and in which the knowledge is material.

The application of the doctrine of imputed notice is all-important in this case, because the check of the bank, being negotiable like money, was passed to the credit of the Rittenhouse Company as payment pro tanto of its indebtedness; and if so applied in good faith, without notice or anything to put the firm as such on inquiry, that act alone was sufficient to vest title to the money in the defendants. Stephens v. Board, 79 N. Y. 183; Justh v. Bank, 56 N. Y. 478. And see Southwick v. Bank, 84 N. Y. 420; Hewhall v. Wyatt, 139 N. Y. 452, 34 N. E. 1045. And this upon the ground that money is currency,—has no ear marks; that its possession vests title in the holder, as to third persons dealing with him, and receiving it in due course of business and in good faith, even in payment of a precedent account. The defendants go further than the making of the ordinary bookkeeping entries, and show that the firm not only kept the usual ledger account with the Rittenhouse Company, on which the draft was credited to it, but had added thereto a system of entries in what is called the “advance book,” which was kept for the information of the Rittenhouse Manufacturing Company, that it might know to what extent it could draw against the firm of Ammidown & Smith. It had been arranged before this that, after drawing the 75 per cent, of the market value of the goods consigned to Ammidown & Smith, the other 25 per cent, was to go in reduction of the debt of that company to the firm. Smith claims that, when the proceeds of these drafts were received, they were put on the advance book in the form of a credit to the Rittenhouse Company, and that the company drew upon Ammidown & Smith, not only for the 75 per cent., which they were allowed to draw under the agreement, but for the proceeds of these discounts as well; that in this manner the proceeds were turned over to the company before any notice of the plaintiffs’ claim; and that, by such turning-over, Smith, as a member of the firm, and Ammidown & Smith, as a firm, derived no benefit or profit whatever from the proceeds of the discounts, and are therefore not chargeable in respect thereto.. While there is force in this circumstance,—sufficient almost to warrant a finding of good faith on the part of the firm as a firm,—it must be deemed controlled by Smith’s actual knowledge of the insolvency of the Eittenhouse Company, and imputed knowledge of the fact that the proceeds were from discounts made on warehouse receipts for wool fraudulently purchased from the plaintiffs, which had not been paid for; and this knowledge destroyed all right to protection in behalf of the firm as bona fide transferees. If Smith did not acquire full knowledge on the subject, he had sufficient notice to put him upon inquiry; and the rule is that, where circumstances are such as to put a person upon his inquiry, he is chargeable with every knowledge which the inquiry would have disclosed if it had been properly followed up. Williamson v. Brown, 15 N. Y. 364. Failure to follow a reasonable clue is "such gross negligence as would be a cloak for fraud if permitted, and it must be held to amount to constructive notice.” Whitbread v. Jordan, 1 Younge & C. Ex. 303. And "when a party, having knowledge of such facts as would lead any honest man, using ordinary caution, to make further inquiries, does not make, but, on the contrary, studiously avoids making, such obvious inquiries, he must be taken to have notice of those facts which, if he had used such ordinary diligence, he would readily have ascertained.” Id. 328. And see Wright v. Cabot, 89 N. Y. 570; Edwards v. Dooley, 120 N. Y. 553, 24 N. E. 827. If Smith chose to remain ignorant in regard to matters about which he might have informed himself, that was his right; but he cannot put the consequences upon others, and must-be held, so far as they are concerned, to be chargeable with the knowledge which inquiries properly pursued would have revealed. These inquiries, if made, would have disclosed the true state of facts before detailed, and would have left him with his partner’s knowledge of the fact that the proceeds of the wool equitably belonged to the defrauded owners of the wool from which the proceeds came. Under these circumstances, the defendants are chargeable with the amount of the proceeds,—$9,242.44,—-with interest, aggregating $11,178; and for this sum, with $250 allowance, the plaintiffs are entitled to judgment.  