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Hirsch v. Phily

Decided: May 8, 1950.

SAMUEL HIRSCH, PLAINTIFF-APPELLANT,
v.
AUGUST PHILY, MURRAY WHITE AND SUPERTEX DYEING & FINISHING CO., INC., DEFENDANTS-RESPONDENTS, AND DOMINICK SCIALLA, DEFENDANT



On certification to the Appellate Division of the Superior Court.

For reversal -- Chief Justice Vanderbilt, and Justices Case, Heher, Oliphant, Wachenfeld and Burling. For affirmance -- None. The opinion of the court was delivered by Vanderbilt, C.J.

Vanderbilt

The plaintiff appealed to the Appellate Division of the Superior Court from a judgment of the Chancery Division of that court dismissing his complaint and we have certified the appeal here on our own motion.

The plaintiff, who is in the business of discounting accounts receivable, advanced to the Artex Dyeing & Finishing Co., Inc., over a period of five years various sums for which Artex gave him demand promissory notes in the amount of each advance and, as collateral security therefor, assignments of accounts receivable. At the time of the matters complained of herein the notes aggregated $23,700 and the accounts receivable $31,261.13. Each of these assignments, all of which are in the same form, sets forth the name of the debtor, his address, and the gross amount of the invoice, and contains the following language:

"For value received, we do hereby sell, transfer, and set over to S. HIRSCH, their successors, assigns and legal representatives, the claim and account set forth above, and all our right, title and interest therein and to any and all of the merchandise therein described, and any and all of the merchandise returned or unaccepted thereon. * * *

"And hereby constitute and appoint, and by these presents do constitute and appoint S. HIRSCH our true and lawful attorney irrevocable,

for us and in name and stead, but to its own use and benefit to sell, assign, transfer or set over, demand, compromise or discharge, pledge, sue for and collect the foregoing accounts, and to receive all moneys due or to grow due thereon. * * *"

The amount of the advance in each instance approximated sixty per cent of the total of the accounts receivable listed in each assignment. On some occasions these advances were made prior to the actual billing of the accounts receivable; in such instances the assignment of the accounts was delivered to the plaintiff a few days later after the billing had in fact been made. As checks were received from the customers of Artex in payment of the accounts assigned to the plaintiff, the checks would be noted on a collection report by Artex and both the checks and the collection report would be held for Leslie J. Cotter, the plaintiff's agent in charge of the Artex account, who would usually call at the Artex office twice a week. Cotter would examine the checks and the collection report and receive from Artex its check drawn on its general account to the order of the plaintiff for the amount of the promissory note secured by the particular assigned accounts represented by the customers' checks. Artex then deposited the customers' checks in its own account. This procedure was consistently followed for a period of about five years, on each occasion the customers' checks being retained by Artex until they had been examined and the collection report approved by Cotter. The customers of Artex were never notified of these assignments to the plaintiff and on no occasion did the plaintiff collect or attempt to collect the accounts directly from the customers. There was nothing in the assignment of accounts, however, which precluded the plaintiff from dealing directly with the customers of Artex, but on the contrary the assignments, as is shown by the language above quoted, expressly gave the plaintiff that right.

On July 19, 1948, at which time Artex was indebted to the plaintiff in the sum of $23,700, secured by assigned accounts totalling $31,261.13, Cotter appeared as usual at the office of Artex and was shown the customer's checks aggregating

$11,179.97, and was told that this was all the money that had been collected from the customers on the assigned accounts. Cotter was then given two checks of Artex, one for $5,893.02 and another for $5,286.95. The second of these two checks Cotter was requested by the defendant White, who had succeeded the defendant Scialla as secretary of Artex, to withhold from deposit for several days, but when this check was deposited it was returned because there were insufficient funds in the Artex account to meet it. This check, however, was later made good by White. On several occasions thereafter Cotter made attempts to obtain further payments, but each time he was informed that no collections had been made. Finally at a meeting in August White told Cotter that Artex had ceased operations. When asked by Cotter what had happened to the assigned accounts, White replied, "The collections, they have been used up, dissipated, they are gone." At the same time White assured Cotter that the plaintiff would be paid. According to Cotter this was the first time he knew that anything was wrong with Artex. Thereafter Artex was adjudicated to be an insolvent corporation in a suit instituted against it in the Chancery Division of the Superior Court. The plaintiff filed a proof of claim in that proceeding in the sum of $12,520.03, representing the balance due the plaintiff from Artex on its demand promissory notes which had been secured, as hereinbefore set forth, by the assignments of accounts receivable that Artex had collected and appropriated to its own use. In making this proof of claim the plaintiff reserved the right to proceed at law or in equity against any other persons for the recovery of the moneys represented by these accounts receivable.

The present action was brought by the plaintiff against the defendants Phily, Scialla and White, officers of Artex, on the grounds that they had converted to their own use or to the use of Artex funds of the plaintiff amounting to $12,520.03, and against the defendant Supertex Dyeing & Finishing Co., Inc., on the grounds that it had been ...


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